AIRLINK 62.48 Increased By ▲ 2.05 (3.39%)
BOP 5.36 Increased By ▲ 0.01 (0.19%)
CNERGY 4.58 Decreased By ▼ -0.02 (-0.43%)
DFML 15.50 Increased By ▲ 0.66 (4.45%)
DGKC 66.40 Increased By ▲ 1.60 (2.47%)
FCCL 17.59 Increased By ▲ 0.73 (4.33%)
FFBL 27.70 Increased By ▲ 2.95 (11.92%)
FFL 9.27 Increased By ▲ 0.21 (2.32%)
GGL 10.06 Increased By ▲ 0.10 (1%)
HBL 105.70 Increased By ▲ 1.49 (1.43%)
HUBC 122.30 Increased By ▲ 4.78 (4.07%)
HUMNL 6.60 Increased By ▲ 0.06 (0.92%)
KEL 4.50 Decreased By ▼ -0.05 (-1.1%)
KOSM 4.48 Decreased By ▼ -0.09 (-1.97%)
MLCF 36.20 Increased By ▲ 0.79 (2.23%)
OGDC 122.92 Increased By ▲ 0.53 (0.43%)
PAEL 23.00 Increased By ▲ 1.09 (4.97%)
PIAA 29.34 Increased By ▲ 2.05 (7.51%)
PIBTL 5.80 Decreased By ▼ -0.14 (-2.36%)
PPL 107.50 Increased By ▲ 0.13 (0.12%)
PRL 27.25 Increased By ▲ 0.74 (2.79%)
PTC 18.07 Increased By ▲ 1.97 (12.24%)
SEARL 53.00 Decreased By ▼ -0.63 (-1.17%)
SNGP 63.21 Increased By ▲ 2.01 (3.28%)
SSGC 10.80 Increased By ▲ 0.05 (0.47%)
TELE 9.20 Increased By ▲ 0.71 (8.36%)
TPLP 11.44 Increased By ▲ 0.86 (8.13%)
TRG 70.86 Increased By ▲ 0.95 (1.36%)
UNITY 23.62 Increased By ▲ 0.11 (0.47%)
WTL 1.28 No Change ▼ 0.00 (0%)
BR100 6,944 Increased By 65.8 (0.96%)
BR30 22,827 Increased By 258.6 (1.15%)
KSE100 67,142 Increased By 594.3 (0.89%)
KSE30 22,090 Increased By 175.1 (0.8%)

The news channels continued the tried and tested “petrol bomb” headlines, when in fact 1.8 percent increase in petrol price was not the real news. The news is that the 15-month high petrol price at Rs112.7/ltr has the lowest incidence of Petroleum Levy ever in Pakistan’s history. It is so low that it is non-existent. Literally. As anticipated earlier, the PL on petrol has now been brought down to nil for the first fortnight of the new fiscal year.

It was seen coming. As international oil prices started to rise, the government’s space eroded. From the high of Rs30/ltr in November 2020, the PL has come down to zero for July 2021. While PL at zero may sound the biggest news, it is not. It is the GST on petrol, which has been tinkered with for the first time in two years.

Recall that the GST on both petrol and diesel had stayed at standard 17 percent since July 2019 under the IMF program, and all adjustments in tax incidence were carried through PL. Not anymore. PL offers no more room. It is time for GST. It is not the magnitude that is important, as it has only dropped to 16.4 percent. But this indicates the government’s willingness to let go of revenue in a bit to keep petroleum prices in check, even if it now takes reducing GST.

The base price for petrol at Rs86 per liter for July’s first 15 days is the highest ever. No wonder it coincided with the lowest ever PL. The benchmark Arab light crude oil at $79/bbl is the highest since November 2018. The tax incidence is also the lowest since November 2018 – this is no coincidence. What is clear is that if oil prices remain north of $70/bbl, government will struggle to levy PL higher than Rs5/ltr.

The government has clearly banked on low oil prices. The chances of that happening anytime soon appear slim, but oil market has thrown many surprises over the years. Whether or not Saudi Arabia also offers oil at concessional rates in addition to deferred payment facility is not known yet. The finance minister had previously hinted at this, without confirming. If history is any guide, the low petrol price – high growth theory is being put to test. Fiscal consequences are obvious, but it is worth the shot.

Comments

Comments are closed.