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Brent crossed $56/bbl the other day, registering an 11-month high. More and more signs now tell oil prices may stage a brisk recovery, and $60/bbl may be seen soon. Pakistan made merry in 1HFY21 as low international oil prices offered enough cushion for the government to leverage the opportunity to maximize allowed levies and taxes.

There was the comfort of high base of previous year, and even nominal increase in petroleum product prices kept retail prices lower year-on-year. The Petroleum Levy last maxed at Rs30/litre for both petrol and HSD in Nov 2020. The four price revisions since November end have seen the Petroleum Levy drop every fortnight.

For the fortnight starting January 15, at Rs21.5/ltr, PL for petrol is the lowest in 15 price revisions, while that for HSD at Rs23/ltr is the lowest in last ten revisions. This is not necessarily alarming for the government in terms of its tax collection target. Recall that the 1HFY21 was a record-breaking period for PL collection – where the amount pocketed is expected to be close to Rs300 billion. This is two-third of the Rs450 billion annual target already achieved.

The 2HFY21 is expected to be in stark contrast to the first half, as petroleum product prices are inching close to previous year’s levels. Low base will start setting in from April 2021, and the government may well have to let go more from the PL kitty, if the aim is to keep petroleum prices lower year-on-year. With the IMF expected to be back in the fold sooner than later, the government will have to ensure it does not lower the PL from Rs15/ltr. There is still some cushion available for that eventuality, but another $5/bbl in Arab light and the low base in effect from April – may lead to PL capped at Rs15/ltr.

An average of Rs17/ltr of PL in the second half could still fetch enough for the government to cross the line. But the honeymoon period may well be over for now, and the tax agencies may have to work harder rather than hoping for the easy cash to keep coming.