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The pressures on petroleum tax revenues are getting more obvious by the day. The smooth sailing in 1HFY21 is what has come to the rescue, as low crude oil prices ensured there was no need to jack up retail prices, even when GST and Petroleum Levy was being charged at the maximum allowed limits. If you are looking from a target perspective, the government will likely fall short by 8-10 percent from its annual Rs450 billion target.

But if you are looking for year-on-year growth, there is ample upside, as GST and PL incidence in 9MFY21 has averaged Rs41 per liter on petrol and HSD. This is 19 percent higher year-on-year, and comfortably the highest ever, 58 percent clear of the trailing 5-year petroleum tax incidence. Couple that with double digit year-on-year demand, and that comfortably yields higher revenue than previous year.

The cumulative tax collection for FY21 should still cross Rs700 billion, even at the prevailing low rates of PL and assuming static demand – up from Rs580 billion in FY20. Now, the PL may still fall short of the target by Rs40-50 billion, but the increase over previous year, is still more than what the government would have hoped for, at the start of the year.

The real challenge is beyond FY21 if the oil -price challenge persists. With every passing day, the government is only going closer to the general elections. It may sound more than two and a half years far, but the deeper you get into you term, the difficult it gets to take tough pricing decisions.

It is, therefore, baffling that the most recent indication given to the IMF fails to see the ground reality. As per the country report, Pakistan PL collection in FY2021 is estimated at north of Rs500 billion, which is daydreaming at best, with only five more fortnights to go. More interesting is the PL budget estimate for FY22, which is aimed at Rs607 billion. This assumed an overly simplistic and highly unrealistic scenario of the government charging maximum PL throughout the year, in a scenario where petroleum demand jacks up by no less than 20 percent year-on-year. Good luck!