Of FBR's SRO's on sales tax, nearly half of them in the past year have been on petroleum products taxation. Governments reliance on indirect taxation in general and GST in particular is well known - GST on petroleum products makes up for one-third of the annual GST collection; hence the SROs. While the IMF does not like its clients issuing many SRO's but like other things, there are good SROs too.
Now some context to the petroleum pricing in Pakistan, which, after a steep cut in global oil prices, has of late come under heavy criticism and not all of it is undue. The notion that gasoline (petrol) prices should now be at least Rs20/ltr lower than where they are after the small reduction on Monday holds little ground. The GST on petrol now stands at 26 percent, on top of Rs10/ltr charged in the form of Petroleum Levy. Should petrol be priced with GST at 17 percent, it would be 7 percent cheaper from current rates and not 30 percent as popular media or opposition leaders would tell you.
That said the case with High Speed Diesel (HSD) is a different one. The tax incidence on diesel has shot up to a massive 64 percent and that is without accounting for another Rs8/ltr charged as Petroleum Levy. For sure, there is no right or wrong rate of GST, but 64 percent on anything under any circumstances on a vital domestic consumption product does not sound right.
This column has always been of the view that petroleum prices have by and large followed the trend in international prices and the headlines such as government drops a petrol bomb are inadequate. However, the extent to which the government has of late played with petroleum prices through GST reeks of the never ending reliance on GST as the main revenue source and unfairly depriving consumers of the surplus.
The government circles would tell you that it is wise to use the opportunity to maintain tax revenues without actually burdening the masses. There is some merit in the argument, but that merit goes away when you find out that the government is pocketing more than just the bare minimum in terms of GST on petroleum products.
Consider this - the GST collection in lieu of the two primary products petrol and HSD, for 1HFY16 stands at Rs129 billion. This is a mammoth 55 percent higher than Rs83 billion collected in the same period last fiscal year. The average GST on petrol in absolute terms this far this fiscal year is Rs13.9/ltr, almost similar to Rs13.7/ltr in the same period last year. What the government is cashing on is the surge in petrol consumption, which has increased by 17 percent year-on-year.
In case of HSD, the numbers are even more staggering. GST collection in lieu of HSD for 1HFY16 is a massive 71 percent higher year-on-year, at Rs90 billion. HSD volumes have only slightly picked by four percent YoY, but it is the gigantic rise in average GST rate in absolute terms that is doing the trick. The average GST on HSD thus far this fiscal stands at Rs25.7/ltr or 69 percent more than the same period last year.
Mind you, the government this time around in its notification through the FBR has fixed the GST in absolute terms instead of the earlier used percentages. Apparently the government has worked out these absolute rates for the remaining months of the fiscal year and if that is the case, the kitty would be fatter by 41 percent year-on-year, on account of GST revenues on petrol and diesel. For more perspective, the GST on HSD only (applying average year-to-date volume and prevailing GST) for FY16 could surpass the GST combined for petrol and diesel in FY15.
Yes, the furnace oil related revenues have shrunk significantly, but they do not form a major chunk of the pie, and the expected loss would be around Rs20-25 billion, as against over Rs80 billion additional revenue from petroleum related GST. And since the volumes have improved, the budgeted Rs135 billion for petroleum levy is likely to be achieved with ease. So, while the consumer still pays lesser than last month, someone is surely making merry of the situation and in billions.
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