Petroleum revenues still on track

The petrol price decision for May 2020 was once again taken for a ride by critics on both extremes. There is that one side, which would not settle for anything less than an immediate price relief, without any currency, time, or taxation considerations or even making room for cost of crude oil refining.

On the other extreme are those ruing the missed opportunity to beef up the tax kitty, citing regional prices and equating with dollar rates. One must not forget that petroleum prices have a considerable bearing on inflation, which leads to monetary policy considerations and debt payments. Bringing India in all comparisons, is also a favorite in Pakistan. One would do well to remember that the level of agriculture subsidy doled out in India is light years ahead of Pakistan. Simply equating diesel prices with India would not help.

Now on to the petroleum revenues for the last quarter. In a refreshing surprise, April petroleum sales numbers were not as grim as were earlier anticipated. Petrol sales went down by 20 percent month-on-month, whereas diesel sales picked up mainly on account of wheat harvesting season.

Recall that the countrywide lockdown was the most stringent in April – and is now being gradually eased. It is safe to assume that petroleum sales would pick up from last month, even if they do not grow in year-on-year terms.

The GST has remained at 17 percent and is expected to fetch significantly less than previous quarters, on account of volume and value terms both – as retail prices have come down significantly. The 4QFY20 GST on petrol and diesel combined should fetch around Rs40 billion – down from Rs57 billion average in first three quarters of FY20.

The real deal is the Petroleum Levy (PL), which has been stretched to the maximum limit of Rs30/ltr for diesel, and the highest ever at Rs24/ltr for petrol. One wonders what do the proponents of “maximizing the opportunity” want, when taxes are almost stretched to the hilt. Should international crude oil price stay range bound – the PL for 3QFY20 alone can surpass previous quarter’s PL collection – on top of the yearly target already achieved in 9MFY20.

The 4QFY20 PL collection could surpass Rs100 billion. That is enough of a cushion for those wanting to cash on the opportunity. Just because petroleum revenues are the easiest to come by, should not mean that paying consumers be squeezed to the fullest.