The government on Tuesday decided to decrease the prices of petrol and high-speed diesel (HSD) by Rs1.5 per litre from Sept 1 to "provide maximum relief" to people.
It also decreased the price of kerosene by Rs1.5 and that of light diesel oil (LDO) by Rs1 per litre, respectively.
According to a notification issued by the Finance Division, the new price of petrol will be Rs118.3 per litre, HSD will be Rs115.03 per litre, kerosene will be Rs86.80 per litre and LDO will be Rs84.77 per litre.
The rates have been reduced despite fluctuations in the prices of petroleum products in the international market and anticipated increase in the future, the government said.
"The government is firmly committed to ensure stability in prices of essential commodities and has sustained the price pressure in line with its commitment to the common man," it added.
It noted that the petroleum levy was kept at a minimum which was a "clear reflection that the government is fully cognisant" of the impact of higher petrol prices on basic commodities.
According to Petroleum Division sources, the Oil & Gas Regulatory Authority (Ogra) calculated Rs3.50 per litre reduction in the ex-depot price of petrol and about Rs5 per litre decrease in the ex-depot price of HSD.
Likewise, the ex-depot price of light diesel and kerosene oil was calculated to go down by Rs2 and Rs3 per unit, respectively.
The price cuts were worked out because of lower international oil prices even though the exchange rate had deteriorated over the past 15 days of August.
As of now, the government is charging 17 per cent general sales tax on HSD, followed by 10.54pc on petrol, 6.70pc on kerosene and 0.20pc on light diesel. The standard GST rate is 17pc, which means the government is foregoing significant revenue flow.
The government is also charging a negligible Rs2.05 per litre petroleum levy on HSD and 24 paisa per litre on light diesel and zero on petrol and kerosene. This means the government is also losing substantial revenue on a solely federal tax.
On August 15, the government had kept unchanged the price of petrol at Rs119.80 per litre and that of HSD at Rs116.53 per litre. On the other hand, it had increased the ex-depot price of kerosene by 81 paisa per litre to Rs88.30. Also, the ex-depot price of light diesel oil was increased by Rs1.10 per litre to Rs85.77.