Petrol prices have nearly hit the century and the electronic media and political parties have “rejected” the increase. Unsure if these political parties would do any differently once in power, but rejection of any price increase makes political sense.
The petrol prices are at a four-year high. Last when petrol price crossed the century mark – Brent crude price in the international market was $102/bbl back then. It averaged $74 in June 2018. What has changed since is the rupee dollar parity. Brent price in June 2018 actually averaged 3.8 percent lower than May 2018 – but a currency depreciation of almost similar magnitude meant the government had no option but to pass on the impact.
Furthermore, given the precarious fiscal position, the government had to turn back to increased GST, which is now back to 17 percent – up from 12 percent in May 2018. The outgoing federal government had inexplicably reduced the GST on petrol to 7 percent on the last day at office, without any notification of change in petroleum prices. That looked like a ploy to tell everyone the ‘GST on petrol was as low as 7 percent when we left.’
Recall that the Finance Act 2018-19 allows the government to impose higher Petroleum Levy (PL) on petroleum products, and from the notification, it appears, the PL has also been inched up from the earlier maximum limit of Rs10/ltr. That seems the right step, and the government would do better to make more use of the available PL room – and rely more on passing the increase on through PL rather than GST, as the revenue from PL is not to be shared with the provinces.
Moving on to the fairness of the price increase, Pakistani consumers still enjoy 27 and 20 percent cheaper petrol than the commuters of India and Bangladesh, respectively. The tax incidence in case of India today goes as high as 46 percent – versus that of 27-30 percent in Pakistan.
The government always has enough variables to tinker with consumer petroleum prices. Should the currency dip any further, it could be played around with sticking with GST in absolute terms rather than GST, a practice adopted earlier for a few months. Yes, the price increase, especially that in case of diesel, is inflationary, but is not unfair. Had Pakistan had a better trade mix, higher reserves, lower debt – and resultantly, stable currency – petroleum prices would have been lower with the prevailing taxation regime.
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