KARACHI, May 26: Oil Marketing Companies (OMCs) and refinery operators were surprised to see the Board of Investment's proposal to the government of abolishing petroleum development levy (PDL)
, saying that complete abolishment of the PDL looks impossible in the near future.
"From where will the government cover the revenue shortfall of over Rs45 billion in case it abolishes the PDL in the upcoming budget?" most business leaders asked when contacted by Dawn to seek their comments.
Market analysts said the finance ministry might have been surprised over this BoI's budgetary recommendation and it was unlikely that the ministry would accept this proposal.
They said in case the PDL was abolished then it would result in price cut in petroleum products and its impact would also filter down in prices of other essential items, which usually fluctuate due to change in transportation charges.
An official in an OMC says that the reports are also pouring in regarding reduction in import duties and general sales tax (GST) and under such circumstances the proposal of abolishing PDL seems a remote possibility.
"From where the government will compensate its losses on account of PDL abolishment?" asked a refinery operator, who declined to be identified, adding whether "the government will increase its bank borrowing or impose more taxes to cover the shortfall of Rs45 billion."
The abolishment of PDL will definitely result in price decline of petroleum products, but the government will have to think twice before touching this crucial source of revenue earning from the oil sector.
The announcement of PDL target for next fiscal year by the government will give a clear hint about government's assumptions of future oil prices and demand growth, Research Head of Invest Capital and Securities, Mohammad Sohail said.
This target was Rs45.8bn for 2002-03 and Rs46.1bn for 2003-04. He said the thing to watch out for will be the government's expectations of collection in the form of PDL. Any change in PDL may show government's expectations of oil demand in 2004-05, and may also show its intentions of keeping oil prices from rising too much.
PDL, 15 per cent sales tax and other taxes and levies play a major role in domestic prices. OMCs and refinery operators cannot ask the government to curtail it as it is their prerogative.
In Pakistan, the retail price of petrol carries around 40 per cent of taxes in shape of PDL and GST alone besides other charges like fixed duty, ex-refinery/import price (variable), inland freight, dealer margin, distribution margin etc. In diesel, PDL and GST share 26 per cent of the taxes in the retail price.
The cumulative impact of taxes and duties on petrol reaches over 50 per cent and over 30 per cent on diesel. Currently PDL on petrol is Rs8 per litre after a cut in the last fortnight review from Rs9.50 per litre.
On diesel, it is Rs3.50 per litre. In the last fortnight price revision - prices had been kept unchanged as the government had taken a hit on itself by cutting the PDL. The World Report in its July 2003 report said that PDL accounts for a significant amount of government revenue from the petroleum products.
