The government will collect an additional Rs 1.32 per litre General Sales Tax (GST) as a direct outcome of its decision to increase the price of oil and products from 9.1 to 13 percent, announced early Friday morning.
According to the notification issued by Oil and Gas Regulatory Authority (Ogra), the rate of GST has been increased by Rs 1.01 per litre on petrol, Rs 1.04 per litre HOBC, Rs 1.4 per litre kerosene oil, Rs 1.32 per litre Light Diesel Oil (LDO), Rs 1.24 per litre JP-1 and Rs 1.14 per litre JP-4.
In addition the government is collecting Rs 5.03 per litre Petroleum Levy (PL) on petrol and Rs 8.25 per litre on HOBC on direct sales to consumers by oil companies. However, the rate of PL on LDO and kerosene oil is zero. There is no subsidy on oil and products (excepting LDO and kerosene) therefore the claim that the government was subsidising the price of petrol is inaccurate, the government's notification clearly indicates.
However the government does collect considerable revenue from taxing oil and products that include GST and PL. The decision of the government not to raise prices in line with the rise in international oil prices cut down on its revenue as opposed to expenditure which is what subsidies are.
According to the press released issued by Ogra, the international price of petrol during the last five months increased by 35% whereas the government only increased prices by 15 percent. International prices of High Speed Diesel (HSD) in the same period rose by 40 percent whereas in Pakistan the rise was limited to 18 percent.
The federal government claims that it will incur a subsidy of Rs 10 billion approximately on account of POL prices in the month of April only. Government also claims that it has given Rs 35 billion subsidy till March 31. This subsidy is in effect a reduction of its revenue collection. According to a report of Federal Board of Revenue (FBR), the government collected Rs 118.163 billion on petroleum products at domestic as well as import stages during first half of current financial year 2010-11.
According to the FBR analysis of sales tax, the petroleum sector has been the top revenue generating source of sales tax with 45% contribution in overall sales tax domestic collection during first half of 2010-2011. The sales tax domestic collection on petroleum products grew by 13% to Rs 63.318 billion against Rs 56.018 billion in corresponding period last year.
Sales tax on import stage increased by 26 percent to Rs 54.845 billion against Rs 43.526 billion during first half of current financial year. In addition to sales tax collection on petroleum products, government collected Rs 47 billion PL during the period under study. The annual budgetary target for collection under head of PL and GST on petroleum products is Rs 250 billion on both domestic market and at import stage.
In December 2010, the government kept oil prices unchanged by adjusting the PL despite rising trend in global oil prices. But government raised oil prices in January this year and after a week, it was forced to withdraw the decision due to political pressure. Government also increased oil prices in March but withdrew 50 percent hike again due to political pressure.