ISLAMABAD, Dec 3: The government estimates that a continuous freeze on oil prices despite hike in the international market would cost an additional Rs101 billion to the exchequer during the current financial year.

The government will, however, indirectly recover more than Rs90 billion as sales tax on petroleum products and the petroleum development surcharge (PDS). In the first three months (July-Sept) of the current year, the government had collected Rs4.2 billion as PDS and Rs25 billion as sales tax during the first five months (July-Nov).

Informed sources told Dawn on Monday that caretaker Prime Minister Mohammadmian Soomro was informed by the ministry of petroleum and natural resources that the price differential claims (PDCs) of the oil industry would increase from Rs41 billion at present to over Rs100 billion by the end of the financial year on June 30 and the government would need to provide a subsidy of Rs101.2 billion on petroleum products if the impact of international prices was not passed on to consumers.

However, some cabinet members were reluctant to describe it as ‘subsidy’ for the fact that the consumers contributed perhaps much higher revenue than the price differential claim. According to the sources, the government collected about Rs65 billion as general sales tax (GST) on petroleum products last year which was expected to go beyond Rs90 billion this year because of over 22 per cent higher diesel consumption and another 5-9 per cent higher fuel requirement during electioneering. Therefore, the government would be providing a net subsidy of less than Rs10 billion if seen purely in the context of revenue collection on oil products and the additional cost of higher international prices.

The sources said that during meetings on oil pricing, the petroleum ministry proposed that in the unusual circumstances, the government should consider either doing away with 15 per cent GST or cut it to 10 or 7.5 per cent to reduce the impact of higher oil prices on the economy, but the proposal was vetoed by Federal Board of Revenue Chairman M Abdullah Yousaf because of the annual revenue target.

It was also pointed out that oil prices would have inflationary pressure. The ministries of petroleum and finance were in favour of a rise in prices. The sources said the caretaker prime minister appeared to have been convinced by the arguments for the price rise but left the meeting for some time and on return simply wrote “No change” on the file.