EDITORIAL: Petrol price has been slashed by 10 rupees per litre, High Speed Diesel’s by 13.06 rupees per litre, kerosene’s by 11.15 rupees per litre and light diesel oil’s by 12.12 rupees per litre for the fortnight 16 to 30 September. This is a significant decline and would have a major impact on the disposable income of all those who use their own transport – cars (high end as well as low end), and motorbikes.

It is yet unclear by how much, if at all, public or private transporters will reduce their fares as a consequence, as, historically, transport prices have exhibited a sticky downward movement though any increase in fuel prices notified by the government lead instantaneously to a hike in fares. This would in turn determine by how much the price of perishables, with a component of transport from farm to market, will be affected.

Petroleum levy is technically a sales tax, an indirect tax whose incidence on the poor is greater than on the rich, but is deliberately placed under the head of non-tax revenue so as not to share its proceeds with the provinces, given that sales tax is a component of the divisible pool.

In the current year, petroleum levy is budgeted to generate 25 percent of total sales tax, the largest single source of Federal Board of Revenue (FBR) collections in any given year, and 26 percent of total non-tax revenue. It is important to note that the levy was retained at 60 rupees per litre on petrol and not raised to 70 rupees per litre (legislated as part of the Finance Bill 2025) to meet FBR’s shortfall of 98 billion rupees July-August this year for what industry experts told Business Recorder is legitimate concern that any further rise in the levy would further reduce consumption with a consequent negative impact on collections under this head.

Consumer Price Index (CPI) declined to 9.6 percent in August from a high of 23.1 percent in February this year and the Sensitive Price Index (SPI) for week ending 12 September was 14.36 percent lower against the same week the year before and only 0.01 percent from the week ending 5 September 2024.

The question is will this decline generate a feel-good factor for the general public? And whether this decline in fuel prices will up the collections under the levy?

The budget for the current year has earmarked a whopping 1.26 trillion rupees under this inequitable and unfair indirect tax whose incidence on the poor is greater than on the rich. Analysts explain that this may not achieve the objective of increasing consumption as the steady reduction in the consumption of petroleum products is attributable to an eroding income due to three factors.

First, salaries have remained static in the private sector (accounting for 93 percent of all those employed in the country) which implies that inflation would shrink disposable income each month and week even if there has been a steady decline in inflation data released by the government.

Second, the budgeted rise in taxes on the income of the salaried will further reduce take-home pay.

And finally, administrative decisions taken to meet the International Monetary Fund’s prior condition of ensuring full-cost recovery of utilities have led to a sustained rise in electricity rates, an expense that lower end households are hard pressed to reduce further.

As per the Sensitive Price Index (SPI), electricity charges rose by 4.13 percent the week ending 12 September compared to the week before and hence the disposable income shrank further.

One may, in sum, assume that the FBR revenue shortfall will have to be met through higher taxes and with the government focused on raising taxes on existing payers rather than on widening the net the feel-good factor will be further compromised.

The solution lies in slashing current expenditure instead of raising reliance on inequitable taxes further, given that there is no capacity of the general public to bear the burden of any further increases in utility rates (expected as the Monetary Policy Statement dated 12 September referred to a delay in these decisions) or indirect taxes.

Copyright Business Recorder, 2024