Petroleum pricing is simple business. It has been made so tricky by those at the helm, that it gets people scratching their heads month after month. At times, it is the international crude oil that does the trick. Other days, it is the dollar that is playing the havoc. And there are times when government’s revenue requirements assume priority.
Basically, of all available avenues, petroleum is the easiest and often then most important, to extract revenues from. The current government has not done anything dramatic so far on the petroleum pricing front. It is business as usual – as there have been changes to account for currency movements, and then there have been changes (and no-change) to make room for more revenues. It is the stance before coming to the government that haunts them more than anything else.
July 2019 is a classic case. Petrol and diesel prices were both kept unchanged. Someone was quick to point out that the prices in the international market had actually eased during the period, so where the relief as is promised earlier. The swift response was all based on the ever depreciating rupee. But the numbers would not add up. The Arab Light (benchmark) crude oil had shed 13 percent from previous month – whereas rupee had only lost 5.5 percent. In came the sales tax SRO – revising the GST upwards on both petrol and diesel to 17 percent from 13 percent. The GST on petrol in rupee terms at Rs16.37 per liter for July 2019 is the highest since May 2014. Any five-year high rate was always going to invite some ire. It would not be the case, if the government had adopted a rather clear policy, fixing the rates in absolute rupee terms – saving people (and those DSNG vans outside petrol stations end of every month) the trouble.
And it is not asking for too much either. A look at the tax collection on petrol and HSD in the past six years, tells the total revenue generated per liter has remained in the range of Rs26-27, FY16 being one exception. Demand forecasting is not one of the stronger suites of most authorities in Pakistan, but surely the forecasted numbers would not deviate much from reality, in case of petroleum. The government can simply fix the taxes in absolute rupee terms (both GST and PL) – and it would not have to worry about explaining the rise or no-change month after month. Exceptions can surely be set aside in cases of extreme volatility, or steep increase in international prices, in which case, the tax burden could be lowered for a brief period. Common sense can do wonders, and petrol pricing requires that.