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EDITORIAL: The Khan administration’s decision to raise petroleum and products prices in line with Oil and Gas Regulatory Authority’s (Ogra’s) recommendations reflects not only passing on the rise in the international price of these products but also an increase in the petroleum levy by 4 rupees per litre to meet the administration’s pledge to the International Monetary Fund that each month the levy will be raised by 4 rupees per litre to reach the maximum legal limit of 30 rupees per litre. Thus 4 rupees per litre in the raise in prices of each of the items is pocketed by the government as levy: price of petrol has been raised by 12.03 rupees per litre, high speed diesel’s by 9.53 rupees per litre, kerosene oil’s by 10.08 rupees and light speed diesel’s by 9.43 rupees.

In addition, the Federal Board of Revenue (FBR) collected a whopping 287 billion rupees in customs duties and sales tax from petroleum products during the first seven months of the current year (July-January), reflecting a rise of 72 percent from the comparable period in 2020-21 with customs accounting for 88.4 billion rupees against 36.4 billion rupees collected in the same period of last year (achieved through raising customs duty on import of petrol from 5 to 10 percent in the budget), and even though the government slashed sales tax on petrol to 0.79 rupee per litre against the standard rate of 17 percent, it imposed 17 percent sales tax on crude oil at the import stage. Therefore, to argue that the recent raise is simply a pass-through attributable to the Russian-Ukraine tensions is not backed by ground realities given the raise in the petroleum levy as well as the collections under customs and sales tax on these products.

What is however finding absolutely no traction with the general public is the late-night statement by the Finance Division claiming that the Prime Minister deferred the last review of petroleum products prices on January 31, 2022 against Ogra’s recommendations “in order to provide utmost relief to the consumers, government levied zero percent general sales tax and reduced petroleum levy rate against the budgeted target. Resultantly, the government is bearing the revenue loss of around 35 billion rupees (fortnightly).” The reason is threefold.

First, to define failure to meet the unrealistic budgeted target, unrealistic based on the flawed assumption that the international prices of the commodity would decline, enabling the government to levy these taxes with little if any political repercussions, as revenue loss defies logic. Second, as noted above, to imply that the recent raise is simply a pass-through is patently inaccurate. And finally, to claim that sales tax and petroleum levy have been kept to minimum requires clarification (notably, minimum based on the unrealistic budgeted target or the pledge made to the International Monetary Fund).

There is no other commodity besides POL whose prices have such an immediate impact on all food prices, as farm to market transport rises immediately, public transport costs rise too irrespective of whether the consumers use public transport or their own with the rupee eroding faster in the hands of the salaried and the vulnerable relative to the rich.

What is baffling is that the Prime Minister and the Finance Minister claim on the one hand that they are going to proactively go after high net worth individuals who do not pay income tax (though neither has focused on strengthening the farm income tax payable in provinces governed by Pakistan Tehreek-e-Insaf) while on the other hand, they continue to rely heavily on indirect taxes (budgeted this year to account for over 62 percent of total FBR collections).

There is, therefore, a need to acknowledge that income tax and sales tax filers may be around 2 million and 4 million people, respectively; however, due to heavy reliance on indirect taxes and an all-encompassing income tax withholding regime, the number of taxpayers is extremely high. There is an urgent need to reform the inequitable, unfair and anomalous tax structure and given that this administration is into its fourth year out of its five-year tenure, this sadly is not its priority.

Copyright Business Recorder, 2022


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