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U-turns have been plenty. Consider the petrol price joke one as well. Why defer the inevitable if you cannot sustain it? The joke is on the government. Not because the petrol price is where it is, as that is by and large a function of international prices and dollar. But because the urgency with which the petrol prices were revised upwards again tells you a thing or two – about the state of affairs.

The IMF Mission is in Islamabad. They certainly would not have taken a strong liking to a few billion rupees forgone just before the programme is inked. Not that a month would have caused a huge dent to the total tax collection, but the Fund would surely like better signaling. The fact that the government finally gave in (rightly so) and let the petrol be priced at over the so-called psychological Rs100 barrier – tells more may well be around the corner, in terms of power and gas prices.

The more worrying aspect seems the fiscal situation. It is a slowing down economy and revenues are hard to come by. While the trade deficit has improved by leaps and bounds – it will have its fair share on tax collection as well – as import stage sales tax collection is a sizeable number. Petroleum and electricity taxes then become the easiest avenues.

Not that the government has tried to squeeze more form the consumers facing the shortfall. In fact, far from it, especially in a scenario where it faces a significant drop in petroleum volume sales. The combined sales of petrol and HSD have been lower by 14 percent over last year, and this is where the real damage has been done in terms of tax collection.

The total GST and PL collection on petrol and HSD for FY19 is not expected to yield more than Rs380-385 billion. This is 14 percent down from Rs445 billion last year and lowest since FY15. The volumetric dip is single-handedly responsible for the dip as the total tax (GST and PL) incidence per liter of petrol and HSD, stands around Rs26.94. This is virtually at similar level of FY18, and at par with 5-year average of Rs27.3. But low volumes have not helped. Had it not been for the massive rupee depreciation – the government would have had a golden chance to earn more in lieu of PL and GST.

Taxes on petrol have averaged 10.6 percent of the total tax revenue in the last five years. This in itself is another story why the reliance on indirect and easy taxation has never faded. Be that as it may, from 10 percent of total tax last year, at this rate taxes on petroleum products would do well to fetch 8.5 percent. Looking from another lens, if the government is to achieve its revised taxation target for FY19 – a small matter of Rs80-90 billion have to be fetched. In all likelihood, revenue on petroleum is going to fall shot by 15 percent from last year, and by a higher margin from the target.

High time the petroleum pricing is dealt with more common sense for once. The government should ideally fix tax in rupee terms, divided equally in 12 months, to meet its revenue target for the year. This will make Ogra more relevant, removing government’s role in price setting, and could also reduce the media hysteria on the last day of every month.

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