Petrol prices

The Pak Banker - - FRONT PAGE -

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.

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