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KP opposes proposed Rs30 per litre Petroleum Levy


May 21, 2018

PEHAWAR: Opposing the proposed increase in the average rate of Rs30 per litre Petroleum Levy and other taxes and duties in the annual budget 2018-19, Khyber Pakhtunkhwa has conveyed its concerns to the federal government on the measures by arguing that these steps would diminish the shares of the province in the federal divisible pool of the National Finance Commission (NFC).

The provincial government through its Finance Department has submitted that the budget has been formulated in a way which adversely affects the share of the province from the divisible pool under the NFC.

These measures, it says, can be judged from the figures that the size of divisible pool is budgeted to increase by 12.71 percent whereas the overall budgeted revenue is expected to increase by 17.88 percent.

The analysis paper available with The News suggests that the unusual increase in the Petroleum Levy from existing Rs3 to average Rs30 per litre as proposed in the budget will shift revenue from the divisible to the non-divisible pool creating social and economic woes for the province.

It informs that this levy will generate additional Rs130 billion, as given in the budget document, but it is likely to generate additional revenue of around Rs310 billion for the federal government, which it will not share with provinces.

The province says it is a cause of grave concern for it, therefore, the Petroleum Levy may be made part of the divisible pool or, alternately, should not be increased.

Furthermore, it says, the provinces have to meet the expenditure on environmental protection and public health as these are in the provincial domain. However, due to the Petroleum Levy not being included in the divisible pool of the NFC, the resources generated through this levy, although essentially designated for health, are not shared with provinces and, instead, these are appropriated in the accounts of the federation alone.

The ‘Gas Infrastructure Development Cess’ (GIDC) is the other non-divisible item, which the province opposes saying it is to be increased from Rs15 billion to Rs100 billion, but royalty on natural gas will remain stagnant.

In regard to the budgetary measures on GIDC, it suggests that instead of increasing it, the federal government should increase rate of Federal Excise Duty (FED) on natural gas (which constitutes a provincial receipt under Article 161(1) (a) of the Constitution).

It is pertinent to add that the rate of FED on natural gas is lying stagnant at Rs10.0 per MMBTU since 2010 despite the increase in the consumers’ price of natural gas.

Under the Petroleum Products (Petroleum Levy) Ordinance, 1961, the rate of Petroleum Levy has been substantially increased at the average rate, ranging between Rs3 to Rs14 per litre and estimated at Rs8 per litre which will yield estimated revenue of Rs170 billion during 2017-18.

The increase in rate from the average rate of Rs8 per litre to the flat rate of Rs30 per litre and the increase in the petroleum levy rate on locally produced LNG from Rs11486 per tonne to Rs20,000 per tonne is estimated to yield additional revenue of Rs130 billion (Rs300 billion in 2018-19 as against Rs170 billion in 2017-18).

However, keeping in view the quantum of increase in the levy, from average of Rs8 per litre to the flat rate of Rs 30 per litre on POL products and of Rs8,514 per tonne on LPG, one can safely estimate that the additional revenue in 2018-19 will pitch at Rs310 billion and not Rs130 billion.

The Finance Department also apprehended that, in the future, the federal government would not increase the sales tax on POL products and use the Petroleum Levy as balancing factor for determination of consumers’ prices of POL products.

This, too, if so done, will affect the provincial share of Sales Tax on POL products in the divisible pool of NFC. In any case, it says, there is no justification for increase in Petroleum Levy.

The province has, therefore, suggested that the increase in the rate of Petroleum Levy should be withdrawn or, alternately, made a part of the divisible pool under Article 160(3)(v) of the Constitution read with Article 3(1)(h) of the 9th NFC Award.

It is pertinent to say that the federal government has, as yet, failed to levy FED on crude petroleum oils, as mandated under Article 161(1)(b) of the Constitution, thus, depriving the provinces (especially KP and Sindh) of its legitimate and due resources in terms of the Constitution.

The two provinces earnestly suggested that FED at five percent may be levied on crude oil which will neither affect nor increase the consumer prices of the POL products as this will be an adjustable input tax in terms of section 7(1) of the Federal Excise Act, 2005.

However, the provinces, especially KP and Sindh, will get their legitimate and constitutional resources in terms of Article 161(1)(b) of the Constitution.

Khyber Pakhtunkhwa also submitted its reservations on the Income Tax, Super Tax, CVT, Sales Tax, and tobacco cess.

It asked the federal government to review its tax regime laid in the annual budget and refrain from measures that may harm the shares of the provinces in the NFC award.

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