FBR to collect additional Rs32bln after raise in sales tax on furnace oil

KARACHI: The government decision to increase sales tax rate on import and supply of furnace oil by three percent is likely to generate additional revenue of around Rs4 billion/month and it will also significantly increase electricity prices, sources said on Thursday.
The FBR on Wednesday issued SRO 962(I)/2015 to increase the sales tax rate of furnace oil to 20 percent from 17 percent effective from October 1, 2015.
The sources said the decision has been taken considering the shortfall in the revenue during the first quarter of the current fiscal year 2015/16.
The Federal Board of Revenue is likely to collect Rs30-32 billion in the next nine months of the current fiscal year if the rate of sales tax remained unchanged, they added.
Shahid Hussain Asad, spokesman and Member Inland Revenue (Policy) at the FBR said the move would increase the electricity prices in the country but fell short of details.
Most of the independent power plants in the country run on furnace oil and high speed diesel and according to the economic survey 2014/15 around 50 percent electricity generated in the country is thermal based.
Analysts said increase in sales tax on furnace oil will deprive the consumer cheap electricity.
The government is gradually increasing sales tax rates on petroleum products following a sharp decline in international oil prices. “But it was a government’s policy decision to keep sale tax rate on furnace oil unchanged so that the masses are not directly hit,” a source said. “However, FBR’s failure to meet the revenue collection target of Rs647 billion for the first quarter was behind the harsh decision.”
Instead of passing the benefit of low international oil prices to the masses the government preferred to enhance revenue and in recent past several times increased sales tax rates on other POL products.
Asad said the revenue authority had collected Rs600 billion in the first quarter of the current fiscal year compared to Rs541 billion in the same period last fiscal year.
In another SRO 963(I)/2015, the FBR notified an increase of five percent sales tax of high speed diesel effective from October 01, 2015. The new rate of sale tax on high speed is fixed at 50 percent.
Analyst Ahasan Mehanti at Arif Habib Corp said the electricity rates would remain firm after the increase in sale tax on furnace oil “as the government needs additional revenue for its development projects.”