Oil rates unchanged

To keep prices of petroleum and products unchanged was the decision taken by the Ministry of Finance on the summary of recommendations of price adjustments sent by Oil and Gas Regulatory Authority (Ogra) for the month of August because, in its estimation, there was no competent authority available to decide the matter. The reference is clearly to there being no Minister of Finance and no cabinet subsequent to the disqualification of former Prime Minister Nawaz Sharif by the Supreme Court in the Panama Papers case to formally grant its approval.
The stated policy of the government of Pakistan is clear and unambiguous: a change in the international price of petroleum and products (increase or decrease) is to be passed onto the consumers. Ogra determines the actual price based on an identified formula: the fluctuating commodities' international price, the rate of inland freight margin, rate of dealers' commission and rate of distributors' margin of oil marketing companies. The regulatory authority also includes the levy of existing taxes imposed by the federal government; notably, petroleum levy and sales tax. It is with respect to the possibility of an adjustment in sales tax that accounts for Ogra sending the summary to the Ministry of Finance which, in turn, seeks approval from the cabinet and subsequently new prices are notified. The decision to keep prices unchanged by the Ministry of Finance was therefore inappropriate and it would have been better advised to desist from making any public statement with respect to the price of petroleum products and simply waited for the new cabinet to be in place - the appropriate forum, as per a recent Supreme Court decision, to decide whether to adjust the sales tax on petroleum products.
The Pakistani governments rely heavily on taxes generated from petroleum and products as a source of revenue a fact that was acknowledged by the then Finance Minister, Ishaq Dar, on the floor of the house. Additionally, the sales tax on petroleum and products is levied as a percentage of the price of the product and, therefore, in the event that Ogra recommends a decline in price total revenue collections automatically decline if taxes are not adjusted (raised). This accounts for Pakistani governments, severely strapped for cash with the prospect of ever-rising budget deficits looming large on the horizon, rarely passing on the entire price decline in the international market to domestic consumers. This tendency was more marked during the Dar-led Finance Ministry as he struggled to meet his over-ambitious budgeted tax and non-tax revenue targets.
Another complication with the summary sent by Ogra to the Ministry of Finance end July was that it recommended a price rise in light diesel oil of 10 rupees per litre and on kerosene a rise of 13 rupees per litre. The former is in use by the industrial sector while the latter is in use mainly by the poor for cooking purposes hence such a significant increase would have had serious implications on gross national product as well as on poverty levels. Ogra had recommended a decline in price of high speed diesel by 5.07 rupee per litre, used by transporters, and petrol by 3.67 rupees per litre which is used mainly by a sizeable portion of the population.
It is expected that once Shahid Khaqan Abbasi's cabinet is installed, the Ogra-proposed price for none of the four products would be approved and the cabinet would make considerable adjustments in taxes. However, one would hope that the overriding consideration of the new cabinet is not to ensure generation of the budgeted revenue but to ensure that the vulnerable/poor are protected, the industrial sector does not witness a rise in its cost that would make it uncompetitive and the general public is not subjected to higher inflation as a consequence.