EDITORIAL: Petroleum and its products’ prices have been raised for the second half of January by 3.20 per litre for petrol (against Oil and Gas Regulatory Authority’s (Ogra’s) recommendation of 10.68 per litre), high speed diesel by 2.95 rupees per litre (against Ogra’s recommendation of 8.37 rupees per litre), kerosene by 3 rupees per litre (against Ogra’s recommendation of 10.92 rupees per litre) and by 4.42 rupees per litre (against Ogra’s recommendation of 14.87 rupees per litre). The lower price approved by the Prime Minister, no doubt to minimize the impact on the general public, was adjusted by reducing the Inland Freight Equalization Margin (IFEM) from 3.56 rupees per litre to 3.53 rupees per litre and raising petroleum levy from 21.56 rupees per litre to 22.85 rupees per litre – an addition chargeable to the consumers.
Ogra’s recommendation is based on (i) the change in the international price of oil with actual payments linked to the rupee-dollar parity at the time of import. The rupee-dollar rate was 168.88 to the dollar on 8 August 2020, with the lowest rate witnessed on 16 November at 158.15 to the dollar and an average during this period of 163.36 to the dollar. While it is not known as to the exact rupee dollar rate the day the payment for petroleum and products’ imports was made and we would urge Ogra to release this information too in its recommendation in future yet the prices in the global oil market have risen significantly in recent weeks/months as the global markets slowly emerge from the pandemic-related lockdowns; and (ii) take account of the general sales tax (GST) and the petroleum levy announced in the last price determination by the regulator which was 17 percent and 21.56 rupees per litre, respectively. Given that GST is levied ad valorem, any rise in the price of the commodity would automatically increase the revenue per litre as well as total collections of the government while an increase in Petroleum Levy, included in the price rise approved by the government, is specific and not ad valorem, the government has increased the quantum of the levy to rake in additional revenue. In this context it is relevant to note that the Khan administration has almost doubled its reliance on petroleum levy as a source of revenue – from 260 billion rupees realized in the revised estimates of last year to 450 billion rupees budgeted for the current year – a whopping 8 percent of total tax revenue budgeted for collection in 2020-21. In other words, the government revenue through these measures is likely to rise instead of decline – a major consideration given that negotiations are ongoing with the International Monetary Fund (IMF) to resume the 6 billion dollar Extended Fund Facility programme through the successful completion of the ongoing second mandatory review which would, in turn, lead to approval of disbursement of the next tranche.
Though the government did not raise prices by as much as recommended by Ogra which is being hailed by PTI stalwarts as reflective of the prime minister’s desire to minimize the impact on inflation, yet the fact remains that he has also not slashed the government’s take by way of revenue from POL products to blunt the pain of cost push inflation on the common man but has allowed an increase in this take by agreeing to an increase in the rate of petroleum levy. This, in turn, would cause an impact on prices of all products, including perishable food prices due to higher transport costs from farm to market. Such policies were also adopted by previous administrations though the impact on public perception today maybe more negative given the fact that salaries across the board have not been raised, the inability of the government to check price of food items and last but perhaps not the least the second wave of the pandemic.
Copyright Business Recorder, 2021
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