Saturday October 23, 2021

Petrol levy

June 04, 2021

The IMF, with its regular conditions, tries to convince beneficiaries of the need to impose levies on essential products such as petroleum. But such impositions are not always in the best interests of the people. In Pakistan whenever an incumbent government goes to the IMF, it comes back with a set of conditions including a surge in petroleum prices. Now as the upcoming budget is on the anvil, once again the government is finding it challenging to tackle the petrol-price issue as it directly affects common people in the country. The IMF has been asking the government to generate Rs600 billion through petroleum, which is likely to result in a Rs30 per litre levy on petrol, diesel, and other byproducts. This is a high target which may fetch billions for the government but will enhance the prices of so many other necessities of life such as electricity, groceries and other essential food items. Any increase in transportation cost has a direct impact on common people. Trying to generate Rs600 billion from petroleum alone is an uphill task and the government must reduce this target to not more than Rs400 billion or at the most Rs450 billion for the whole financial year.

For the benefit of the people of Pakistan, the petroleum prices should remain unchanged and petroleum levy remain at the present level, or not more than five rupees per litre on motor gasoline and not more than nine rupees per litre on high-speed diesel sold at retail outlets. Though the government has been trying to fix the petroleum levy and other federal receipts in the range of Rs450 billion to Rs500 billion, even this will hit the people hard. There are other revenue generation options that the government must explore. For example, spectrum auction has been pending and if conducted in a transparent manner can bring in over Rs150 billion in the next fiscal. Non-tax revenue is always a good alternative that does not affect people directly and if the government manages to increase it by 30 or 40 percent from the present level of around one trillion to 1.3 or 1.4 billion that will be a sound solution to at least some of the financial problems the government is facing.

Then there are other non-tax options that the government can tap such as royalty on gas and SBP profits. The prospects are not looking bright on this front as the budget is approaching fast and July onwards people must brace for some tough times. There is still the issue of petroleum storage capacity that needs enhancement. Not long ago, the country faced a crisis because the authorities were negligent in keeping an eye on the available stock of petroleum in the country. When the prices of petroleum are low, many countries get benefits by storing extra stocks but, due to a lack of extra storage facilities, Pakistan does not benefit much from the low prices and gets hit hard when the prices are up. As inflation is still hovering around 10 percent, the people cannot afford another contributing factor to higher prices. Any further escalation in inflation will make life much harder for the people of the country who already need assistance and support in the time of Covid-19.