ISLAMABAD: The Economic Coordination Committee (ECC) of the Cabinet has deferred the Federal Board of Revenue’s proposal seeking the imposition of 17 percent sales tax on High Octane Blending Component (HOBC) and RON-97. However, the ECC allowed an increase in petroleum levy on RON-95 and above.
The meeting presided over by Finance Minister Ishaq Dar instead decided to increase petroleum levy from Rs30 to Rs50 per litre on RON-95 and above from November 16, 2022.
Sources told Business Recorder that the FBR has been facing revenue shortfall, therefore, it proposed to impose 17 per cent sales tax on HOBC and RON-97, arguing that the petroleum sector is one of the major contributors to revenue and distortion in its tariff regime puts tremendous pressure on the FBR’s efforts to achieve its revenue targets.
The FBR has faced a revenue shortfall of Rs22 billion in October 2022 and was assigned to collect Rs537 billion in November 2022. The meeting was also informed that it has also been agreed with the International Monetary Fund (IMF) in the seventh and eight review of Extended Fund Facility (EFF) that the government would take contingency measures to keep revenue collection on target and increasing the rate of GST on fuel as prelude to reaching the standard rate of 17 percent is one of such contingency measures.
RON 95 and above: ECC hikes PL from Rs20 to Rs50 per litre
However, the FBR proposal to impose 17 percent sales tax on HOBC and RON-97 petrol, which are luxury goods consumed by rich consumers in expensive vehicles, was not approved. The revenue impact was estimated at around Rs6 billion in the remaining period of current fiscal year.
The ECC was also informed that the rates of sales tax on POL products, effective from February 1, 2022, were reduced to zero per cent through notification SRO 321(I) 2022 issued under section 3 of the Sales Tax Act, 1990, which empowers the federal government to notify sales tax at a rate higher or lower than the standard rate of 17 percent.
The FBR maintained that in order to protect the general public from inflationary impact of across-the-board increase in GST on all POL products, it is proposed that sales tax rate may be enhanced from zero per cent to 17 per cent on high octane blending component (HOBC) and RON-97 only. It added that HOBC and RON-97 petrol is a luxury good being consumed by wealthy consumers in expensive vehicles. It is being sold now at a premium price of Rs256 per litre (HOBC) in contrast to Super petrol which is being sold at Rs 225 per litre. The revenue impact of this proposal for the remaining part of the current financial year (eight months) is estimated at Rs6 billion.
The FBR has also submitted draft of the SRO for imposition of 17 percent sales tax on HOBC and RON-97.
Copyright Business Recorder, 2022
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