ISLAMABAD: The government announced another reduction in fuel prices on Saturday, but put a damper on the good news by imposing a further five per cent sales tax.

The levy means that the consumer will only partially enjoy the benefits of falling crude oil prices in the international market.

The new fuel prices, which go into effect on Sunday (Feb 1), will bring the price of petrol down to Rs70.29 per litre, high speed diesel to Rs80.61, kerosene to Rs61.44, light diesel oil to Rs57.94 and HOBC to Rs80.31 per litre.


PM, Dar jump the gun, announce cuts 12 hours before Ogra notification


With the imposition of an additional 5pc GST, the total amount of sales tax on all petroleum products comes to 27pc. The cut in oil prices is expected to help the government earn an additional Rs12 billion in revenue in February alone.

In January, the government was able to collect Rs16bn after imposing 5pc GST on petroleum products, above the normal GST rate of 17pc.

But in an attempt to score political points, the announcement about reduction in fuel prices came from Prime Minister Nawaz Sharif and Finance Minister Ishaq Dar, instead of the Oil and Gas Regulatory Authority (Ogra).

The PM’s midday announcement was 12 hours ahead of schedule. The Ogra notification of the price cut is routinely issued at midnight, when it is supposed to go into effect. Announcing the price cut in the middle of the day can cause problems for gas station owners because people usually stop buying petrol on the last day before price cuts are due.

After the PM’s announcement, a confident Finance Minister Ishaq Dar convened a press briefing on Saturday to justify the imposition of additional sales tax and announced details of the cut in petroleum prices.

Justifying the additional GST levy, Mr Dar said that several countries, including India, took such measures to arrest the impact of declining oil prices on revenue collection.

A Finance Ministry official told Dawn that the government was facing a revenue shortfall because of unexpected revenue losses on crude oil, which normally yields Rs30bn to Rs35bn every year.

As per the production agreement between the government and exploration companies, revenues on crude oil priced higher than $60 on the international market are shared between the government and the companies on a 50-50 basis. But when prices fall below the $60 threshold, the government’s share goes down to zero.

To cover this loss, the official added, the government had decided to increase the GST on petroleum products.

Crude oil prices in the international market are currently at a six-year low of $45 per barrel.

The fuel price cuts come as Pakistan’s economic team, led by Finance Secretary Dr Waqar Masood Khan, is in talks with the International Monetary Fund (IMF) in Dubai.

Islamabad is briefing the IMF team on its performance in terms of economic indicators as part of efforts to secure the seventh tranche worth $550 million.

Hike in levy criticised: Leader of Opposition in the National Assembly Syed Khurshid Shah criticised the decision to increase GST and said that on one hand the government was unable to provide electricity, gas and petrol to the masses, on the other it was going around burdening people with more taxes.

He vowed to raise the issue in the upcoming session of the National Assembly scheduled to begin from Monday.

Zulqernain Tahir adds from Lahore: Talking to journalists after a ceremony at the Elite Police Training School in Bedian on Saturday, Prime Minister Nawaz Sharif said that other countries did not transfer the benefits of reduction in petroleum prices in the international market to their people, but Pakistan did.

He said that farmers and industrialists would benefit and the prices of food items and daily-use commodities would also come down.

“The provincial governments will have to ensure the reduction of commodity prices and transport fares, in accordance with the cut in petroleum prices,” he said.

In reply to a question about the recent fuel crisis, Mr Sharif said the government would act against all those responsible. “There were issues related to the Pakistan State Oil and certain vested interests were behind the crisis. We initially took action against some officials and further investigations are under way,” he said, adding that media reporting on the issue also created a panic among people, but the situation was controlled in two to three days.

“The government will have to bear a loss of Rs68bn, but it has passed on relief to people. The government will retain Rs 2.76 on petrol, Rs3.16 on HOBC, Rs2.42 on kerosene, Rs3.18 on high speed diesel and Rs 2.28 on light diesel oil,” he said.

Published in Dawn, February 1st, 2015

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