The Petroleum Ministry has sought an explanation from Finance Ministry regarding replacement of petroleum development levy (PDL) with carbon surcharge on two petroleum products-JP-4 and JP-8. The government is currently charging Rs 3 per litre PDL on JP-4 and JP-8. The Petroleum Ministry in its letter to Finance Ministry has asked as to who would be responsible for notifying the levy of carbon surcharge on petroleum products.
At present, Petroleum Ministry notifies PDL, and notification is released by Oil and Gas Regulatory Authority (Ogra). Sources said that Finance Ministry has fixed rate of carbon surcharge in Finance Bill 2009-10 equal to PDL applicable on petroleum products with a few modifications. According to Finance Bill 2009-10, the government will charge Rs 8 per litre carbon surcharge on high speed diesel oil (HSDO), Rs 10 per litre on motor spirit (MS), Rs 6 per litre on kerosene oil, Rs 3 per litre on light diesel oil (LDO), Rs 14 per litre on HOBC and Rs 6 per kg on CNG.
There is no mention of replacing PDL on JP-4 and JP-8 with carbon surcharge, and Petroleum Ministry has sought the status of implementation of carbon surcharge on these two products from Finance Ministry. According to sources, the government charges general sales tax on PDL as GST is calculated on accumulated price of petroleum products that include PDL, IFEM, dealers and oil marketing companies' margins.
With the reduction in PDL collection, government also suffers loss in GST collection following the existing oil pricing formula. The government has targeted collection of carbon surcharge on petroleum products at Rs 122 billion in budget for 2009-10 and Rs 12 billion collection through carbon surcharge on compressed natural gas (CNG).
After imposition of carbon surcharge, the government may de-regulate price of all petroleum products and authorise the oil marketing companies (OMCs) to make automatic adjustment in oil prices in line with global oil prices. However, OMCs will follow the formula of oil pricing set by the federal government.
At present, high speed diesel (HSD) price is de-regulated, based on the federal government formula, whereas the prices of other products including light diesel oil (LDO), kerosene oil, motor spirit, JP-1, JP-4 and JP-8 are regulated and notified by government at the end of every month.
There is much debate over the imposition of carbon tax on petroleum products the world over. Analysts are of the view that carbon tax is undoubtedly a potential pot of money for the state, but the revenue stream has its drawbacks. They have highlighted two key issues: the disproportionate impact on low-income households and impact on economy. However, analysts suggest that the earnings through carbon tax should be used for the projects designed to clean the environment from pollution and welfare of low income groups.
According to researchers, carbon atoms are present in every fossil fuel (coal, petroleum, and natural gas) and are released as CO2 when they are burnt. The purpose of carbon tax is to protect the environment by reducing emissions of carbon dioxide and thereby slow climate change. It can be implemented by taxing the burning of fossil fuels that include coal, petroleum products such as gasoline and aviation fuel, and natural gas, in proportion to their carbon content.
On January 1, 1991, Sweden enacted a carbon tax, placing a tax of 0.25 SEK/kg ($100 per ton) on the use of oil, coal, natural gas, liquefied petroleum gas, petrol, and aviation fuel used in domestic level. Finland, Netherlands and Norway have also introduced carbon taxes in the 1990s. In Italy, carbon tax was introduced or modified in 1998, and the United Kingdom Treasury imposed the Fuel Price Escalator, an incrementally-increasing pollution tax, on retail petroleum products from 1993.
In Pakistan, earnings through PDL collection on petroleum products were originally earmarked for development of the petroleum sector but in reality the funds so collected were utilised to bridge the budget deficit. It is unlikely, so claim analysts, that the government of Pakistan will use the revenue collected from carbon surcharge for environment protection.
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