The FBR may well miss most of its tax collection targets for FY21, as has been the case since forever, but petroleum related tax revenue is one silver lining that has not gone unnoticed. Recall that the official Petroleum Levy (PL) collection in 1QFY21 at Rs136 billion was comfortably the highest ever quarterly figure, besting the previous high by a whopping 45 percent.

As December petroleum products’ sales numbers are in, the PL collection for 2QFY21 is all set to break the previous high and is likely to touch Rs150 billion. The cumulative first half FY21 PL collection at Rs286 billion is one-third of the full year FY21 target of Rs450 billion. The 1HFY21 PL is already closing in on the FY20 full year collection.

All of this was almost unthinkable when the government had announced the Rs450 billion target, as it bordered on extreme scenarios of levying PL of Rs25/liter throughout the year, while also looking at a 10 percent increase in petroleum consumption. The government got lucky, as Covid ensured the oil prices tanked – averaging $45/bbl in 1HFY21 versus $70/bbl in the same period last year.

The government managed to maximize the PL to the upper limit of Rs30/ltr for almost the entirety of 1HFY21 on both HSD and petrol. And the oil prices allowed to do it with ease, without having to increase prices, which remained lower by 28 and 10 percent for HSD and petrol, respectively, year-on-year. The PL has averaged Rs29/ltr in 1HFY21, up from Rs22/ltr in FY20.

Meanwhile, lower oil prices have also allowed the government to keep the GST intact at 17 percent, which has averaged Rs15/ltr in 1HFY21, highest since FY16. Recall that the government under the IMF programme is supposed to not lower the GST on petroleum products from the standard 17 percent. Had oil prices been higher, the hit would have been taken by the PL, which is not a desirable outcome, given PL revenue is not part of the divisible pool.

With a gradual increase in international oil prices expected, the same luxury of charging PL near the maximum allowed limit would not be available for 2HFY21. The first few glimpses have been seen in the last two price revisions, where government lowered the PL to as low as Rs23/ltr on petrol in a bid to keep retail prices in check.

That said, the stellar first half ensures that higher oil prices will not be a worry in terms of revenue collection at least for the second half of FY21. The GST and PL combined collection in 1HFY21 has already crossed 74 percent of FY20’s tally in just six months.

Even if the PL is reduced to Rs20/ltr on both products, another Rs170 billion will likely be pocketed in lieu of PL, enough to surpass the once-optimistic target of Rs450 billion. The bonanza may not last forever though, as the low base will come into play from FY22 onwards, and the government may have to then choose between jacking up revenues or lowering inflation.