Brace yourself for a petrol bomb. Actually don’t. Not because it is not promised in the federal budget, but only because no government will be courageous or stupid enough to increase petroleum product prices by such a high margin as enisled in the budget. For some reason, the revised maximum slab for Petroleum Levy (PL) on all petroleum products to nearly three times to Rs30/liter has not attracted many eyeballs.
The government, in its revenue estimate for 2018-19 has earmarked Rs300 billion from the PL account. This is almost double the amount of Rs160 billion budgeted for 2017-18. Looking at the number, it could be safely said that the government intends to impose higher levy for the next fiscal year on petroleum products, to the tune of Rs17-20/liter, when accounted for usual increase in demand. This is up from the current maximum PL of Rs10/liter on POL products.
There is little denying that the petroleum levy should be the ideal tool to tax petroleum consumption, but it should be done with an almost proportionate decrease in GST. The Finance Bill talks about all sales tax changes proposed for FY19, and there is nothing on the GST on petroleum products, which leads one to believe that the proposed PL is over and above the prevailing high GST on petroleum products.
Assuming, for argument’s sake, that the government does go on to implement it as proposed, it stands to send an inflation shockwave like none other. Achieving the PL target would mean an average increase of 15 percent in petroleum products – petrol, diesel, jet fuel, kerosene oil and others, from the current rates. No marks for guessing, an increase of such magnitude, would result in higher transportation prices, which would eventually trickle down to the retail level. This scenario does not coincide with the inflation target of under 5 percent.
Then why such a step, one may ask. And the answer probably lies in the fact that this is a budget based on some unrealistic numbers – and some balancing was required to compensate for the lofty relief measures. In a more likely scenario, this target is all set to remain an elusive one, to make way for higher deficit than targeted. And we have not even talked about, an equally ambitious target of Rs100 billion from Gas Infrastructure Development Cess. Only Rs15 billion out of the budgeted Rs115 billion is set to be collected for FY18 from GIDC. Do the math, and the starting point of fiscal deficit is already north of the government’s number.
It would be really difficult for the caretaker setup to go for such a massive increase in petroleum prices. That leaves the elected government with 9-10 months to achieve that target. Should that be someone other than the PML-N, it would be even more difficult taking such a step with such bad politics and high baggage, in the initial days. Half year gone. At best, the upcoming government could hope for a massive decline in international oil prices, which could pave way for imposing PL close to the maximum limit. But as things stand today, in a scenario of high international crude oil prices, a shortfall of Rs100 billion on account of PL could be worked out right now, even after accounting for increased demand.
All in all, this whole PL revenue estimation does not seem based on practicality. It already looks a tough budget for whoever comes in next. That is of course assuming that the estimates won’t be tinkered with, whenever the new government comes in. Even, if it is PML-N’s.
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