The crude oil respite has so far appeared short-lived, putting the government in a tight spot again, in terms of the import bill and the revenue collection target on petroleum products. As oil marches back to $80/bbl. and onwards, the hopes of substantially raising petroleum revenues stand to get a setback. This is despite the government’s plans to raise Petroleum Levy by Rs4/ltr every month.

The PL collection has staged a comeback of sorts – rising every month from July to December, from Rs1.5 billion in July to over Rs22 billion in December. The PL in liter terms has gone up in a staged manner from nil in July 2021 to nearly Rs18 for January’s first fortnight. The staged increase will take the PL to maximum limit by the end of 3QFY22.

While this will definitely increase the non-tax revenues under the PL head, the cumulative impact does not promise to be much different. It is a zero-sum game, as PL’s gain is GST’s loss. The retail petroleum prices are hovering around the all-time highs, and with staged PL increase in the offing, the axe will continue to fall on GST, unless Arab Light crude oil prices recede.

The GST and PL have taken contrasting journeys since the beginning of FY22, with PL going up every month and GST struggling to keep up. The total tax collection on HSD and petrol in 1QFY22 and 2QFY22 remained virtually similar, despite significantly increased PL, as GST has been coming down to make room for higher prices. There is also a small matter of revised PL collection target of Rs330 billion for FY22, cut down from Rs610 billion. The differential partly explains the need of the mini budget mid fiscal year.

But even the substantially revised PL target seems difficult to achieve, even if the GST rate continues to hover around the current lows. For the target to be achieved, PL will have to be maxed out for four out of six months (which could happen given the Rs4/ltr monthly increase). But GST will either have to be lowered considerably or be abolished entirely – if crude oil stays around current levels. The 1HFY22 PL collection at Rs65 billion is just around 10 percent of the original and 20 percent of the revised target.