The Federal Board of Revenue (FBR) has taken strict action against fuel fraud. Effective July 1, 2026, FBR imposed a Federal Excise Duty (FED) on three petroleum products. This Rs. 80 per litre FED targets petroleum top naphtha, white spirit (mineral turpentine oil or MTT), and solvent oil. The FBR recently issued sales tax budget instructions for 2026-27 to field formations to enforce this change.
Why Did the FBR Impose FED on these Petroleum Products?
Previously, the government charged a petroleum development levy (PDL) on standard petroleum products. However, the three targeted products entirely avoided this levy. Consequently, dishonest elements exploited this price gap. They mixed the untaxed products into PDL-chargeable fuels. Then, they sold the adulterated fuel at a premium price.
To stop this illegal practice, the FBR brought these items into the tax net. Legally, the FBR imposed the duty by adding S. No. 65 of Table-1 of the First Schedule to the Federal Excise Act, 2005. Furthermore, the FBR added these goods to the Second Schedule. This move allows the FBR to collect the FED in sales tax mode.
Relief for Legitimate Industries
The FBR knows legitimate industries rely on these products as industrial input material. Therefore, the board provided a contingent exemption mechanism. Registered businesses can easily adjust this new duty against their output sales tax.
Moreover, manufacturers can completely bypass the duty if they meet specific conditions. First, they qualify if their final manufactured product is exempt from sales tax. Alternatively, they qualify if both the supplier and the manufacturer actively use the FBR’s computerized system for digital invoices. This digital integration ensures complete transparency.
Boosting Local Refineries
Beyond stopping fraud, the FBR wants to help domestic refineries modernize. Today, refineries must meet strict environmental standards. They need to produce cleaner fuels, control emissions, and reduce both carbon and sulfur intensity.
To achieve this, refineries must execute scheduled turnarounds, maintenance, and major overhauls. They must import expensive, high-value machinery and equipment. Normally, these imports carry heavy sales taxes. Meanwhile, a refinery’s major petroleum products do not attract sales tax. To fix this imbalance, the FBR will now grant sales tax exemptions on specified refinery imports. Refineries simply need prior approval from the relevant Division to claim this tax relief.
