Low HSD demand dents petroleum revenues

The GST collection on HSD sales in FY19 at Rs129.9 billion was the lowest in six years. That on petrol was the highest ever at Rs87 billion. Recall that the FBR’s tax collection targets were missed by massive margins – and while that did not owe all to petroleum taxes, but it did play its part.

FY19 has started on a slightly different note, with a gigantic tax collection target, where the authorities aim at focusing the sales tax efforts on the petroleum products. “Sales tax measures are mostly focused…. enhancing the sales tax of petroleum products,” read the Letter of Intent to the IMF. The 2M GST collection on petroleum products has gone up by 11 percent year-on-year to Rs40 billion. This is despite 21 and 14 percent year-on-year increase in petrol and HSD prices, respectively.

So what gives? The GST too, in absolute terms was the highest ever just last month, and even after downward revision for September 2019, it is comfortably higher than absolute GST charged in the same period last year. Even in percentage terms, the GST is comfortably higher in case of petrol and slightly lower for HSD.

It is the volume aspect of the equation that should be worrying the FBR. The HSD sales for August 2019 have been recorded at the lowest in seven years. Recall that the slump in diesel demand had started in the beginning of FY19, as last year witnessed a massive 20 percent year-on-year decline. But the HSD dales figures for August are very worrying. It remains to be seen whether this is a one-off, due to prolonged holidays and rains. If not, then the tax targets could all go haywire.

International oil prices too are in no hurry to take a bull rally, which means the government will have to stay content with what is on offer. Should the demand fail to revive, the SROs may well be back, as witnessed in the last two years, to raise the GST above 17 percent. That or the ever available option of stretching the Petroleum Levy to the maximum limit of Rs30/ltr cannot be entirely ruled out.