Petroleum prices have not made headlines this fiscal year. A few paisas here and a few there has been the trend so far, thanks mainly to range bound Arab Gulf oil prices, and to a very stable rupee. Petrol has now averaged 73 cents per liter in FY20 so far, which is at par with FY19. But in rupee terms, the increase is 18 percent.
What have changed that are the never ending streams of SROs, under the IMF programme. So the GST on both Petrol and High Speed Diesel (HSD) is now fixed at 17 percent. What has also changed is the way Petroleum Levy (PL) is being treated – as there is now a minimum floor of Rs15/liter on petroleum products. If the PL rates stay at the current average of Rs18 per liter, up from Rs14/liter in FY19 – expect the tax revenues on petrol and HSD to go up by at least Rs65 billion alone on this count for the full year.
And that is direly needed too. Petroleum revenues were cited as one of the chief reasons by the FBR why it missed the FY19 target, as the contribution was lesser by Rs96 billion year-on-year. The 1QFY20 tax incidence on major petroleum products (80% of total petroleum revenues) is Rs34.43/liter – which is easily the highest ever quarterly number.
With the slowdown now bottoming out and the off-take slowly reviving, one could expect both petrol and HSD sales to at least stay on yesteryear levels, if not increase. An increase from Rs27/liter average tax incidence in FY19 to a likely figure of Rs34.4/liter in FY20 – would fetch an additional Rs100 billion on account of tax and non-tax revenues.
Looking form a different perspective, petrol prices are hovering around the highest ever levels, and so are taxes in absolute terms. But in terms of tax as a percentage of Arab Light cost – the current rates are nowhere close to the highs seen earlier in FY16. Either way, a stable currency and range bound oil prices – do present the government with an opportunity to rake in the highest ever petroleum revenues.
Any volumetric increase would just be the icing on the cake.