EDITORIAL: It’s been learnt that one of the key measures under consideration to increase the tax-to-GDP ratio, as agreed with the IMF (International Monetary Fund), is imposing a new surcharge on fossil fuels to generate additional revenue.
Indeed, according to a recent report by the FBR (Federal Board of Revenue), an additional 2.6 percent increase is required in the ratio to take it to the 13.7 percent target by 2028-29, and much of it is expected to come from the said surcharge on fossil fuels, which should enhance the provincial tax revenues and also increase non-tax receipts of the federal government.
The 13.7 percent tax-to-GDP ratio figure is part of the framework agreed with the Fund, with 11.1 percent calculated to come from “intensified policy and enforcement measures by FBR”, which is currently implementing a Revenue Mobilising Programme (RMP), also supported by the World Bank, as part of this reform initiative.
It’s also been reported that the IMF has proposed a general sales tax (GST) on petroleum products, currently at zero, as well as raising the petroleum levy during ongoing discussions in Islamabad, which are part of the unannounced visit by the lender.
The Fund had earlier recommended an 18 percent GST as part of broader tax reforms amid concerns that such steps would drive up fuel costs and trigger inflationary pressures on essential goods and services just when a drop in prices, after three years of unprecedented increases, had led to a dovish turnaround in monetary policy.
While these discussions are going on, provincial governments are wondering why the federal government has kept the provisions of Article 161 of the constitution by not levying FED (Federal Excise Duty) on petroleum products. It’s pertinent to mention that a 5 percent FED was levied during fiscal years 1982-85, back when its collection was not transferable to provinces. They’re also asking why FED is levied at a stagnant, specific rate of Rs10 per MMBtu since 2010, when it should either be calculated ad valorem or the specific FED rate should be correspondingly indexed with price increases.
According to available data, the government applies FED differently across petroleum products. It is not applied directly on petrol and diesel, unlike the petroleum levy, which has been raised to Rs70 per litre to generate required revenue for the ongoing fiscal year. One reason for the centre’s reluctance to go down the FED path could be that proceeds would be adjusted in the divisible pool, with a major portion shared with provinces, which would explain the latter’s preference for it.
Either way, it is not clear how much leverage the government really has in deciding this and other matters related to the final breakdown of revenue figures. Much of this sovereignty has already been traded with the IMF in return for the last-minute bailout.
And if its recent visit and ongoing discussions with the government show one thing, it is that the lender will keep a very close eye on all figures for the duration of the EFF (Extended Fund Facility). Otherwise, it would have simply stuck with its schedule, which put the first review in mid-March next year.
It’s also clear that whatever is finally agreed will trigger another jump in prices and cause hardships for common people. After all, they are the ones that will pay for this bailout at the end of the day.
Copyright Business Recorder, 2024
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