Pakistan will soon be on the drawing board with the IMF for yet another fresh program. Expect the IMF to ask for more pricing actions around energy, which the Fund likes to call ‘reforms’, Be that as it may, with the revenue targets all set to be projected significantly higher than the ongoing fiscal year, there is every chance for the easy-pickings to be squeezed further. And of all the easy ones, petroleum products top the list, when it comes to revenue.

Consider that petroleum related revenues from domestic sales tax to custom duties and from import stage sales tax to levies – have averaged 16 percent of the gross revenue receipts in the last ten years. Petroleum products include gasoline, HSD, jet fuel, furnace oil, and kerosene among others. In FY23 alone, the total revenue from POL products surpassed Rs1.2 trillion. It is expected to be 40 percent higher for FY24, despite reduced volumes – as PL alone could possibly fetch Rs1 trillion.

At a very crude level of analysis, the revenue on POL at Rs77,000/ton was more than thrice FY17. Observers would notice that the blue portion in the chart representing domestic stage sales tax has been reduced to a fraction of yesteryears, as GST on both the bulk use products, gasoline, and HSD, have stayed abolished for some time now. Furnace oil does not have that bright a future either for various reasons – which leaves the government with other duties and levies to play around with in the major fuels.

The authorities’ best bet is a sustained bear run in international crude oil prices – that offers the leeway to impose the now-forgotten GST on HSD and gasoline without having to raise the consumer end price. The chances of that happening are very slim as things stand, as Saudi Arabia led Opec Plus has time and again pulled the plug on production to keep the balance tilted towards the bloc.

This essentially means POL products will continue to be priced around about a dollar a liter (assuming a steady currency). And with the revenue requirements increasing going forward, without a proportionate increase in consumption which has been slow to rebound, pressure to tweak with the tax incidence will only mount.

It is all hypothetical at the moment, but the IMF has previously hinted at levying GST on petroleum on need basis. That room is now getting narrower, and the IMF could well refer to the post-tax subsidy of 22 cents per liter as a case in point to levying GST. Should the GST be levied at current gasoline prices, it would fetch another Rs61/ltr, which incidentally happens to be 22 cents – thus eradicating the post-tax subsidy.

For those wondering, the IMF describes post-tax subsidy as an implicit cost of domestic pump prices being lower than optimal price, which is a blend of supply cost, standard margins, and country-specific standard and corrective taxes. Pakistan has remarkably pulled back the implied subsidy after the 2022 episode and is in fact running its lowest post-tax subsidy in decades. Will that be enough for the IMF this time around remains to be seen. In an alternate world, what would not Pakistan give to have a more diversified and equitable tax base.