Fiscal deficit has been making rounds everywhere – and the government is reportedly falling short of over Rs150 billion. Half of it simply owes to the loss on petroleum product taxes. Significant drop in petroleum volumes has not helped either. High Speed Diesel (HSD) sales are down by nearly 20 percent year-on-year, while that of Petrol (MS) down by 3 percent over last year. That accounts for half the taxation loss on petroleum products so far.
The other half could have been managed well, but the government did not take bitter pill, when in fact was the most suitable time to take such decisions. The GST on petrol was kept in single digits for five straight months. It has now been rationalized back to 17 percent – but the loss incurred earlier will be too difficult to make up for – especially when the taxation targets are on the higher side.
The story of HSD is scarier – as the volume dip is way too big. Even in case of HSD, the GST was kept under the standard rate of 17 percent for three straight months. Surely, the higher ex refinery prices did not help – and then the rupee depreciation came at a difficult time for the government to raise taxes without increasing the product price.
The combined tax loss so far in 8MFY19 (February volumes assumed at January levels) is a staggering Rs84.5 billion. This is 39 percent lower than Rs219 billion collected in lieu of GST on HSD and MS in 8MFY18 – and almost half the amount of the government’s tax shortfall. Such has been the fall, that even the combined GST collection on MS and HSD in 8MfY19 falls short of HSD tax collection in 8MFY18 alone.
Recall that Ogra had recommended reducing the price of petrol by Rs0.59/liter and that of HSD by Rs4.5/liter for February 2019. The government did the needful in case of petrol, but maintained the HSD product price, without altering the rate of sales tax. This means the Petroleum Levy on HSD, has for the first time, reached double digits at around Rs12/liter. The last budget announced by the PML-N government had made room for higher PL imposition to the extent of Rs30/liter – and the subsequent mini budgets maintained that amendment.
The additional revenue on this account could fetch around Rs2.5 billion in February. The government would hope the oil prices stay at current rates or go down further – in order to make use of the PL imposition room available for both the key products. It will be difficult for the government to raise prices, in case of Ogra’s recommendation of a downward revision, as the government’s earlier stance in opposition days was quite the contrary.
Little suggests that petroleum volumes are picking up anytime soon, as the slowdown is here for some time. Government’s best bet is to hope for the international oil prices to stay low, in order to impose higher PL, while maintaining the GST at 17 percent and product prices at current rates or lower. It is quite a wish list.