Petrol: Tax tanks to all-time low

The Petroleum Differential Claim (PDC) lasted four days, before the government rushed to increase prices. Come November 16, 2021, normal services seem to have resumed, as the authorities continue to be pressed in the wake of high global crude oil price. This time around, another first was recorded, as GST on gasoline, came down to nothing, for the first time ever.

The government finally seems to have a change of heart in terms of prioritizing petroleum revenues. Recall that it was Petroleum Levy (PL) on petrol, that had tanked to zero for the first two months of 1QFY22. Unsurprisingly, Rs13 billion collected in lieu of PL in 1QFY22 was an all-time low. On the other hand, GST collection in excess of Rs75 billion stayed well in line with historical trends.

In Q2FY22, PL has made a comeback of sorts whereas GST has taken the biggest hit. Of course, the PL is still way lower than the maximum allowed limit and what is needed to come even close to the lofty target. Some have termed the change of strategy a consequences of IMF negotiations. There is no way to ascertain that, but it does not look all that off as a strategy.

Recall that FBR’s 1QFY22 tax collection was on point and exceeded the target, which does not put provinces under a great deal of stress. Apart from GST, taxes on international trade have risen considerably in 1QFY22, contributing a great deal to overall revenues. One must not forget that customer duties on petroleum imports are now double than last year at 10 percent – which is part of the divisible pool.

As new highs are being tested, this could later offer more room for the government to levy higher taxes in case the global crude oil price does decide to come down. For now, the tax on petrol is the lowest in well over a decade and there is hardly any room for the government to make in terms of offering relief. The November consumption numbers are eagerly awaited to see if the elasticity is challenged or the reduced smuggling theory gains more credence.