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August 14, 2019

Sales tax collection expected to increase Rs11bln in August


August 14, 2019

KARACHI: Increase in prices of petroleum products is expected to generate an additional Rs11 billion in sales tax collection during the current month, but soft oil demand poses a downward risk, sources said on Tuesday.

The Federal Board of Revenue (FBR) has estimated the additional tax collection from the sale of petroleum products due to recent hike in prices for August 2019. The government announced up to 10 percent increase in prices of petroleum products for August. Petrol price increased Rs5.15 / litre and price of high speed diesel rose Rs5.65.

Likewise, price of kerosene was raised by Rs5.38. Price of light diesel oil increased Rs8.90. Sources in the FBR said the estimate of additional amount of Rs11 billion was calculated on the basis of consumption of petroleum products in July.

The FBR sources said the tax machinery collected additional amount Rs8 billion in July following introduction of uniform sales tax rates.

The sources, however, said constant decline in domestic consumption of petroleum products might offset increment in sales tax collection.

The economic slowdown and significant increase in petroleum prices due to rupee devaluation caused petroleum sales to sharply fall 27 percent during the last fiscal year.

“Key risks to the (petroleum) sector include further slowdown in the economy, increase in turnover tax, and currency depreciation,” analyst Shankar Talreja at brokerage Topline Securities said in a report.

The brokerage said oil sales are expected to record a three percent year-on-year decline in July. Furnace oil continued its downward trajectory amidst its lower usage in power generation after the commencement of regasified liquefied natural gas- and coal-based power plants.

Excluding furnace oil, the volumetric sale during the outgoing month is expected to come down three percent year-on-year on the back of decline in high speed diesel sales by eight percent year-on-year.

Sales of high speed diesel fell due to slowdown in economic activities and smuggling from Iran amid higher tax delta. Last month, petrol sales witnessed growth of a six percent year-on-year.

Under an agreement with the International Monetary Fund (IMF), the government decided to bring uniformity in sales tax rates of petroleum prices. Pakistan agreed to $6 billion loan program of the IMF during the last month.

The government set 17 percent sales tax on floor price. Sales tax rates for petroleum products are 13 percent for petrol and high speed diesel, and 17 percent for kerosene and light diesel oil.

The government adopted a policy of providing incentives to masses through reduced rate of sales tax on petroleum products. The reduced rate, however, caused an estimated Rs96 billion in tax losses during the fiscal year of 2018/19.

The reduced sales tax rates on petroleum products during the last fiscal year resulted in tax loss of Rs52 billion on domestic sales and another loss of Rs44 billion at the import stage.

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