Petrol price rise

Federal Finance Minister Miftah Ismail stated that the approved rise in the price of petrol and products is 50 percent of what was recommended by Oil and Gas Regulatory Authority (Ogra) and this decision was taken on the instructions of Prime Minister Shahid Khaqan Abbasi. Ismail's statement baldly claimed that the Prime Minister's decision not to pass on the impact of the Ogra-proposed raise in prices of petroleum and products was attributable to his overriding concern with its likely impact on the common man yet, with less than 30 days left for the end of the tenure of the present government, this contention appears to be more a reflection of its possible political implications.
A couple of basic facts need to be regurgitated to understand the lack of credibility of Miftah's claim. First and foremost, Ogra determines the price of the commodity based on the international price of oil and products and the existing tariff rates. It needs reminding that petroleum and products are increasingly contributing to the annual revenue collections of the government, a claim accepted by former Finance Minister Ishaq Dar on the floor of the House, due to ease of collection. The PML-N government during its current tenure has manipulated taxes on these products to ensure that its collections remain consistent with what was budgeted under this head. Ismail envisages 300 billion rupee collections from the petroleum levy in the budget 2018-19 as opposed to 160 billion rupees budgeted during the current year - an increase of around 88 percent. And he claims in the budget documents that 170 billion rupees would be collected under this head in the current year and one may well ask him if this amount would be reduced due to his decision, ostensibly on the instructions of Prime Minister Abbasi, to pass on only 50 percent of the increase in the international price of oil to domestic consumers.
A look at the applicable tax rates of petroleum and products during the Abbasi administration reveal that on 28 February 2018 the rates were as follows: high-speed diesel oil 27.5 percent ad valorem, motor spirit 17 percent ad valorem, light diesel oil 17 percent ad valorem and kerosene 17 percent ad valorem. The tax rate of high-speed diesel has been left unchanged for the current month at 27.5 percent; motor spirit will be taxed at the rate of 15 percent, 2 percent less than before, while kerosene, a poor man's fuel, will be taxed at the rate of 12 percent ad valorem instead of the 28 February tax rate of 17 percent (which was raised from 7 percent a month earlier); and light diesel oil would be taxed at the rate of 11.5 percent which was earlier taxed at the rate of 17 percent. In other words, those using petrol (mainly cars and motorcyclists who form a sizeable portion of the urban population) will benefit from a reduced tax rate - a consideration that without doubt would lead to speculation that the new tax rates were decided by the political leadership with political considerations in mind. Buses, the poor man's mode of intra-city transport, are notorious for not passing on any reduction in price of petrol to commuters.
Secondly, the Abbasi-led administration may feel that it is not going to face any repercussions of a reduction in revenue due to lower tax rates on oil and products because its tenure ends a month before the end of the fiscal year. However, it is never advisable to underestimate the intelligence of one's constituents and assuming that they would be unable to determine the motive and possible ramifications of a decision taken today.
To conclude, taxes on petroleum and products raise input costs of our manufacturing and farm sector that in turn accounts for the inability of our exporters to compete internationally. In other words, a more rational approach needs to be taken in determining the applicable tax rate on these critical products; however, that decision would have to be made by the next elected government.