To great relief of the common man, the government has reduced petroleum prices. The notified prices have been reduced by 2.4 rupees per litre for MS petrol, by 6.37 rupees per litre for high speed diesel (HSD), by 46 paisa per litre for kerosene and by 59 paisa per litre for light diesel oil (LDO). It is relevant to note here that Ogra's recommended change in monthly prices is based on an established formula that includes taking existing taxes (or those prevalent in the month just past) as remaining unchanged. Ogra's recommended price is then routinely sent to the government to approve and notify it with the objective of allowing the government to adjust the taxes levied on the products. Thus for the PTI government to reduce prices by more than what was recommended by Ogra indicates that taxes have been reduced on all products which would imply that revenue would be lower than what was proj
The former PML-N government was in the habit of reducing budget deficit through not passing on any reduction in the international price of oil and products by raising taxes on these products. This is believed to be the easiest and perhaps the most unfair form of indirect taxation in the country. In addition, high taxes on petroleum and products raise the cost of doing business in the country with a consequent negative impact on exports. While the PML-N government did, on occasion, play to the gallery and reduced taxes as and when the international price of oil declined yet by and large, it raised taxes to generate 'fiscal space' that, disturbingly, it then frittered away through heavy external and domestic borrowing.
It was in this year that oil prices rose up to nearly Rs 100 per liter. They began rising soon after the former Prime Minister Nawaz Sharif was ousted. But that doesn't mean Sharif was keeping oil prices down, as he once claimed. The price of petrol increased by Rs 2.98 in February, high-speed diesel by Rs 5.92, the price of kerosene by Rs 5.94 and light diesel oil by Rs 5.93 per liter in February of this year. When the interim government was in power, the prices of petroleum were increased incrementally up to a point where the petrol cost about Rs 100 per liter, the highest in nearly four years.
The Supreme Court took suo moto notice oof heavy taxes on petroleum sales. Oil prices were increased by up to Rs 14 per liter for the month of July 2018. There was a petition in the Lahore High Court as well back in July against rising petroleum prices in Pakistan which were adding to the miseries of the public. The Chief Justice of Pakistan slammed the interim government for turning petroleum into a 'source of revenue'. The government had to reduce petroleum prices somewhat under the Supreme Court's orders.
The PTI government's logic for reducing POL prices could be twofold: that lower energy and transport costs would lead to lower costs of production thereby fuelling output, and promoting exports, as well as increasing employment opportunities - elements that would automatically increase tax collections from productive sectors; and secondly, lower POL prices would provide relief to the common man, increase his disposable income, which, in turn, would raise consumption and reduce the stockpiles of products thereby rising output. The logic is impeccable; however, there is one caveat which has been consistently pointed out by experts: the current state of the economy is dire with the PML-N administration leaving an unsustainable budget and current account deficit that requires urgent remedial measures and losing out on existing revenue sources, however unfair those sources may be, would simply place greater pressure on the government to raise taxes later.