Petrol prices: Collection of "deemed duty" to support refinery upgrades unearth

ISLAMABAD: From years, the Pakistan government had been collecting “deemed duty” on petrol and diesel prices and provided billions of rupees to local oil refineries over the years.

Speaking on Khabar, host Muhammad Malick explained that the deemed duty policy was originally introduced in 2000 for a period of three years. The purpose was to channel funds to local refineries so they could upgrade their facilities and improve fuel production standards.

Malick noted that by 2022, around Rs300 billion had already been paid to refineries under this mechanism, and the payments are still continuing. However, he questioned whether the funds had been fully utilised for the intended upgrades.

Responding to questions on the issue, Federal Minister for Petroleum Ali Pervaiz Malik said that approximately Rs7.5 per litre of petrol and diesel currently forms part of the deemed duty, which is provided to domestic refineries for technological upgrades and modernisation.

He explained that the duty is included in the per-litre fuel price to help refineries improve their production capacity and meet environmental and quality standards.

Malik added that during the previous government’s tenure, an upgrade policy increased the duty from Rs7.5 to Rs10 per litre and incorporated it into the petrol price structure.

According to the minister, the funds collected under this mechanism will be deposited into an escrow account and used specifically to upgrade refinery infrastructure and reduce environmental pollution.

Deemed duty is generally considered a financial incentive given to domestic refineries to enhance production capacity. While it remains part of the fuel pricing structure, it was not directly cited as a factor in the recent Rs55 increase in petrol prices.