PDL revenue on track to beat target despite lower fuel sales

LAHORE: The fuel tax revenue is expected to exceed its annual target for the fiscal year 2023-24, despite a 13 percent drop in sales of petroleum products in the first seven months, thanks to a hike in the tax rate by the government, data showed on Saturday.

The Petroleum Development Levy (PDL), which was raised by Rs5 per liter to Rs60 in September, brought in Rs573.1 billion in the July-January period. That's 66 percent of the annual target of Rs869 billion, suggesting the government may surpass its goal by the end of June.

Authorities increased the PDL on petroleum products by Rs5 per liter in September 2023, taking it to Rs60. The PDL on motor spirit (MS) or petrol was Rs55 per liter in July 2023 and on high-speed diesel (HSD) was Rs50 per liter.

The higher tax revenue comes at a time when the country is facing fiscal pressures from a widening budget deficit and rising debt servicing costs. The levy is one of the main sources of non-tax revenue for the government.

However, the higher levy also contributed to a drop in fuel sales. Total petroleum products sales fell 13 percent year-on-year to 9.07 million tonnes in the July-January period, according to an analysis by JS Global Capital Ltd.

Furnace oil sales plunged by 53 percent year-on-year to 0.75 million tonnes in the July-January period, as the power sector shifted to cheaper and cleaner sources of energy.

Petrol and diesel sales also fell by 7 percent each to 4.18 million tonnes and 3.67 million tonnes respectively, reflecting lower consumption by the transport and agriculture sectors.

Fuel sales showed some signs of recovery in January, rising by 12 percent month-on-month to 1.38 million tonnes, as consumers anticipated a price hike in February due to rising international crude oil prices and a weaker rupee. However, year-on-year dip persisted and may continue in the remaining months of the financial year. The offtake of fuel oil increased exponentially in percentage by 132 percent month-on-month.

According to the offtake of petroleum products in the month of January 2024, total sales recorded at 1.38 million tonnes compared to 1.44 million tonnes in the same period of the previous year, reflecting a decline of 4 percent year-on-year. The decline comes primarily on the back of lower petrol and diesel sales in the month of January.

Brokerage Optimus Securities said in a report that the oil sector is expected to post a loss after tax (LAT) of Rs6.4 billion in the second quarter of fiscal year 2024, as lower fuel prices eroded margins and inventory values.

The quarter witnessed fuel price drops in almost every fortnight, resulting from softening international crude prices and strengthening of the rupee against the US dollar, the report said.

"The quarter saw cumulative price drops of motor spirit and high speed diesel of Rs64 and Rs53 per litre, taking MS and HSD ex-depot prices at the end of the quarter to Rs267 and Rs276 per litre, respectively, versus Rs323 and Rs318 per litre on the first fortnight of October 2023," it added.

“The gross profit is anticipated to drop by 83 percent quarter-on-quarter to Rs11.7 billion, yielding a meagre gross margin of 1 percent, resulting from inventory losses arising from the price drops mentioned above,” the report said.

The loss was further aggravated by heightened finance costs faced by Pakistan State Oil (PSO), the country’s largest oil marketing company, which accounted for 70 percent of the sector’s LAT, it said.