PDL withdrawn from petroleum products except motor gasoline

ISLAMABAD: Going against its agreement with International Monetary Fund (IMF) on raising petroleum development levy (PDL) on fuels, the government has almost done away with this tax on crude oil products except motor gasoline (petrol).

The PDL has been squeezed to just Rs1.81 on petrol from Rs17.92 per liter.

More importantly, the general sales tax (GST) on MS (motor spirit), HOBC, HSD (high Speed diesel), KO (kerosene oil), and LDO (light diesel oil) has also been withdrawn completely. However, 17 percent GST continues to stay on JP-1, JP-8 and E-10. The government, nonetheless, will continue to charge Rs11.15/litre on petrol and Rs12.18 on HSD in the shape of 10 percent customs duty.

The Prime Minister on Monday evening announced reduction in the prices of petrol and diesel by Rs10/liter each until the next budget in June 2022. Likewise, reduction in electricity tariff by Rs5/unit has also been announced under the head of monthly fuel adjustment cost in the tariff, despite the fact the government is bound to increase the base tariff by Rs2/unit some by end of this fiscal year, while rest will be passed on to end consumers in next fiscal.

The government will not pass the impact of monthly fuel cost on to the power tariff and halt it with a Rs5/unit reduction till the start of next budgetary year. And this reduction will not be extended to all categories of the electricity consumers, rather it will be limited to residential and commercial consumers only.

Minister of Energy Hammad Azhar in his tweet explained “on the instructions of the PM, Fuel Cost Adjustments that have been incurred in electricity bills (due to rise in prices of imported fuels) since last few months to the tune of Rs4-5/unit will be absorbed by the government for residential and commercial consumers”.

Nonetheless, this development brought to fore that earlier there was a petroleum levy on diesel at Rs13.30/litre, which has now been reduced to zero. The PDC (price differential claim) for HSD, to be paid by the government to the oil marketing companies (OMCs), has been worked out at Rs2.28/litre. According to oil and gas industry sources, with the imposition of PDC on HSD, OMCs will have to take a hit of Rs2.2 billion/month. They fear that OMCs may not import diesel because of the PDC as required and the burden will be shifted to state owned OMC —Pakistan State Oil.

Talking to The News, Dr Ashfaque H Khan, an eminent economist, said, “The government has arranged ample financing for the relief package Prime Minister Imran Khan has announced …, dispelling the impression the government is going to abandon the IMF programme”.

“The IMF is concerned only with the budget deficit and the government will achieve that even in the presence of the relief package.”

Dr Khan also dispelled the impression that IMF would have reservations on the relief package, saying the fund was always concerned about the budget deficit target and the government would manage it even in the presence of the relief package.

He said the loss-to-be-incurred by removing the PDL and other taxes would be offset through financing, which the government had already set up.

The government was working on the relief package for the last two months in the macroeconomic advisory council in close coordination with ministries such as finance and energy.

Khan said he had himself played an important role in carving out the relief package for the masses.

“The government is ahead in revenue target with Rs282 billion and this amount will be used for financing the relief measures announced by the government,” said he.

The government has also announced internships for 150,000 graduates and each will get monthly Rs30,000, according to Dr Khan.

He said the government would have a substantial amount, in the shape of its savings such as the dividends of various institutions, to also be used for the relief till the next budget. In addition, the government would also save some amount from the Public Sector Development Programme and Benazir Income Support Programme for funding the relief measures announced by Prime Minister Imran Khan, he said.