The decision by the government to pass on the Ogra recommended prices to consumers in its entirety was taken to ease the existing extremely tight fiscal position, and entailed upward adjustment in general sales tax on petrol (5 percent), high speed diesel (7 percent), kerosene oil (6 percent) and light diesel oil (8 percent) during July.
GST on fuel was raised a mere 25 days ahead of general elections 2018 on petrol from 12 percent ad valorem effective 12 June to 17 percent effective 1 July with 15 percent ad valorem notified by the Abbasi-led government effective 1 May.
GST on High Speed Diesel (HSD) was raised to 31 percent effective 1 July from 24 percent on 12 June and 27.5 percent in April 2018.
Petrol and HSD are two major products that generate the bulk of revenue from petroleum products. HSD sales across the country are in excess of 900,000 tons per month and petrol sales are 800,000 tons per month.
GST on kerosene, a poor man's fuel used for cooking, was taxed at the rate of 12 percent ad valorem for the month of May, kept constant on 12 June and raised to 17 percent effective 1 July. However this is taxed at a higher rate to forestall the possibility of it being used to dilute other fuels.
Light diesel oil was taxed at the rate of 11.5 percent effective May, 9 percent effective 12 June till 30 June and 17 percent effective 1 July 2018.
Sale of kerosene oil and LDO is on average less than 10,000 tons per month.
In addition the government charges Rs 8 per litre petroleum levy on HSD, Rs 10 per litre on petrol and Rs 6 and Rs 3 per litre on kerosene and LDO respectively.
Ogra recommends price adjustment based on the international price of oil and products which takes existing taxes on these products as given; however the decision to modify taxes on these products rests with the government, informed sources told Business Recorder.
As the international price of oil and products rises, as it is at present, the collections under GST would increase automatically and hence the decision of the caretakers to raise rates when international oil prices are rising is to raise revenue in an attempt to ease the very tight fiscal position.
The international price of oil during the past three months has been on an upward trajectory and in June touched $80 per barrel. OGRA worked out average price of POL products on the basis of the average of three month import prices of these products.
The Abbasi led government due to political considerations left the onus of raising tax rates effective 1 June on the caretakers and decided that the May rates would remain valid till 7 June. The caretaker government passed on 50 percent of the Ogra suggested prices effective 12 May.
On April 30, the Federal Board of Revenue decreased sales tax on petrol from 17 to 15 percent (2 percent), HSD from 31 percent to 27.5 percent (3.5 percent), kerosene oil 17 to 12 percent (5percent) and sales tax on light diesel oil was decreased from 17 to 11.5 percent (5.5 percent).