POL prices hike reversal: 5.3 percent fiscal deficit target may not be achieved

The government of Pakistan may fail to achieve 5.3 percent fiscal deficit target if it would withdraw due to its political compulsions its recent decision for raise in petroleum prices by 10 percent, an official in the Ministry of Finance told Business Recorder here on Monday.
The official said that even after 10 percent increase in the prices of petroleum products, the government would pay Rs 10 billion every month as subsidy. "If owing to political compulsions the government withdraws its 10 percent increase, then it may have to pay Rs 14-16 billion as monthly subsidy", he added. The official said that during the recent visit of the International Monetary Fund (IMF), the government had made a commitment that it would reduce and maintain its fiscal deficit at 5.3 percent of GDP till the end of the current fiscal year.
An IMF mission, led by Adnan Mazarei, Assistant Director of the IMF in Middle East and Central Asia Department visited Islamabad during March 1-11. At the end of the visit, the following statement was issued by the Mission: "Discussions on economic stabilisation focused on addressing inflation, containing the budget deficit, reviving growth, and meeting the challenge posed by higher international oil prices.
There was agreement on the need to reduce the budget deficit in the current financial year...........the budget deficit and quasi-fiscal operations have contributed to a loosening of monetary conditions thus adding to inflationary pressures. To help counter these pressures, credit to the budget from the SBP should be reduced further".
The official said that the government knows that the increase in the POL prices will put burden on masses but the government is forced to take the step as it has no other alternative left in this regard. When this scribe contacted Dr Ashfaque Hassan, former Economic Advisor to the Finance Ministry, he said, "Subsidy means negative taxation. I don't think there is any subsidy the government is paying for the sake of the nation".
He said, "The government had earned Rs 351 billion on petroleum products in 2009-10. That was 26.5 percent of total revenue collected by the Federal Board of Revenue (FBR). During the first half of the current fiscal year, the government has earned Rs 164 billion on petroleum products. That is almost 25 percent of the total revenue collected by FBR".
The government is misinterpreting facts when it claims it is providing Rs 10 billion subsidy for petroleum products, whereas in reality it is generating revenue by imposing a Petroleum Development Levy (PDL) as well as sales tax on petroleum products. "The government had set a target of Rs 120 billion for the current year, to be collected under PDL. But it has been able to collect just Rs 40-45 billion under the PDL so far", Dr Hassan added. "The government should not ignore the effect of POL prices hike on various sectors of the economy and consumers," he advised.
"Does the government think that by increasing petroleum prices by 10 percent it will achieve its revenue target of Rs 1604 billion? No, not at all; it should try to collect taxes from other sources, like by imposing farm tax in income mode. The government is playing hide and seek as it has made it a habit of withdrawing or partially withdrawing hikes in prices of petroleum oil and lubricants (POL) after first announcing an increase", he lamented.