Lowering HSD price

According to a report in this paper the other day, the government is thinking of reducing import duty on high-speed diesel (HSD) oil from the current 10 percent to five percent.
A proposal to this effect has been initiated by the Ministry of Petroleum, and tax officials are said to be in the process of preparing their respective viewpoints on the subject to help the Federal Cabinet's Economic Co-ordination Committee reach a decision.
The issue calls for a well thought-out duty reduction plan. Our report points out that going by CBR's duty collection figures for the last fiscal year, the proposed reduction would cause a minimum revenue loss of Rs 2 billion.
Lower duty would definitely encourage demand of HSD when the economy is growing fast, it would lead to higher imports, but since Sales Tax is calculated after incorporating custom duty in the HSD import price, import expansion is not going to bring any gains to the CBR in terms of GST collections.
That though is not to argue against the revision of Petroleum Development Levy to allow for lowering of HSD price. As it is, 60 percent of our diesel needs are met from imports and 40 percent from the local resources, which also cover the country's superior kerosene requirements.
Both HSD and kerosene are products of common use. Diesel is the main fuel for all public transport, including buses and locomotives. And, of course, transportation costs have a direct bearing on the price indices of various goods and services.
Diesel is also widely used to fuel, aside from electricity generators, tube-wells in vast tracts of non-irrigated agricultural lands. So far as kerosene is concerned, it is the poor man's cooking and lighting fuel. Understandably, therefore, successive governments have felt compelled to keep the prices of these two fuels down through cross-subsidies.
The present deliberations on diesel duty reduction seem to have sprung from the same considerations. When the government decides to approve such a concession, it would need to take into account the following possibility: If custom duty rate revision on HSD brings its price down to a level where it is substantially lower than that prevalent in our two energy-deficit neighbouring countries, India and Afghanistan, that would create an incentive for smugglers to scramble for its illicit transport to the markets in these countries.
Hence, its pricing will have to be worked out in such a way that after inclusion of transport costs, it loses attraction for smugglers. There is also need to take a fresh look at the prices of petroleum and its derivatives. As we have been pointing out in these columns, water, power and energy, being the basic factors of production, directly impact our industrial sector's competitiveness in the international market.
These must not be taxed as highly as is the case at present. That is all the more important at a time international oil prices have risen to unprecedented levels. And if the situation in Iraq takes a turn for the worse, they will rise further.
The least that the government can do to ease things is to set up new refineries and also ensure that the existing ones are equipped with plat-former units to strip the furnace oil produced of all lighter ends such as motor gasoline, diesel and kerosene. We hope that the ECC will give due attention to all these concerns and issues when it takes up the subject of duty reduction on HSD.