ISLAMABAD, Nov 27: The government has collected over Rs25 billion revenue on petroleum products so far this year which it could use to offset partially, if not entirely, the proposed 15 per cent price hike if it wants to avoid a negative impact on the national economy and inflationary pressure on the common man.

A government official well versed with the oil pricing formula told Dawn that the government was collecting the tax at the rate of Rs10 per litre on petrol, Rs14.30 on HOBC, Rs4.60 on kerosene and Rs4.25 on light diesel.

Through this, the government has collected more than Rs25 billion, mostly under sales tax revenue, during the first five months of the current financial year.

The official said it was time for the government to review the entire oil pricing mechanism and its various heads, adding that a lot of saving could be achieved through rationalisation of different components of the price.

He said the government could take a policy decision not to collect 15 per cent sales tax on petroleum products. “This will dent its revenue collection in the short-term, but the negative impact of passing on international prices to the economy will have much bigger, snowballing and long-term repercussions.”

The official said the government could also consider reducing sales tax and pass on minimum increase to the consumers if it wanted to restrict production cost at the commercial and industrial level, transportation charges of all commodities and commuter fares and to contain electricity rates that would also go up in case of an increase in oil prices.

Apart from this, the government continues to allow inland freight equalisation margin (IFEM) to oil marketing companies that varies between Rs2 and Rs7 on different petroleum products on a discretionary basis and it goes up and down without any transparent formula. This is in addition to four per cent dealers’ commission and 3.5 per cent OMC’s margin.

The IFEM is charged on all POL products to maintain uniform rates at 29 depots across the country. Under the stated policy of the government, this is a primary transportation cost which should represent actual cost without including any profit element for the marketing companies.

An examination of the actual pricing, however, reveals that it has been changing without any uniform formula.

For example, the IFEM on HOBC was about Rs2.35 per litre in September, but it increased by almost 200 per cent to Rs6.40 per litre in November. In contrast, the IFEM on motor spirit was about Rs2.65 per litre, but it reduced by about 40 per cent to Rs1.55 in November. The actual transportation cost could not have fluctuated so differently on two similar products in a matter of just two months.

The government had early last year fixed the IFEM through a detailed audit on actual cost basis within six months, but this has not materialised so far.

In addition to 15 per cent GST, the government has been charging until recently Rs19 per litre development levy on HOBC and Rs11 per litre on motor spirit during August and September this year, which have now been reduced to Rs6 and Rs2.30 per litre, respectively.

But the government claims that had its international prices passed on entirely to the consumers, the prices of kerosene and diesel would have increased by Rs17 and Rs15 per litre, respectively. There is no denying the fact that diesel has the largest share in petroleum products if furnace oil is not taken into account. The government never mentions that prices of motor spirit and HOBC could also be reduced by Rs14 and 24, respectively. It never tells the public that naphtha is being exported at Rs40 per litre and sold to domestic consumers at Rs54 per litre.