ISLAMABAD: Amid fixing of borrowing limits on provincial governments at Rs112 billion per annum, the Federal Board of Revenue (FBR) on Wednesday opposed a demand from the Khyber Pakhtunkhwa to impose excise duty on local crude production, saying this will increase petroleum prices across the country.

Shahid Hassan Assad, Member FBR, told the Senate Standing Committee on Finance and Revenue that the KP government had requested the federal government to impose federal excise duty (FED) on oil produced in the province.

He, however, said the FBR was opposed to the proposal given the fact that this FED would then be required to be extended to other provinces and on import of crude from abroad for the purpose of uniformity which would increase the prices of petroleum products.

He said the provincial government wanted to have proceeds of the FED under article 161 (1) (b) of the Constitution that said the net proceeds of the FED on oil levied at wellhead and collected by the federal government shall not form part of the federal consolidated fund and shall be paid to the provinces in which the wellhead of oil is situated.

Responding to a question from chairman of the committee Senator Salim Mandviwalla, Mr Assad said the FBR was only a collecting agency and if imposed, it would have to transfer the FED to the province after collection.

It appeared there was another reason behind FBR’s opposition to KP demand. The FBR member said the KP government had argued that downward adjustment in taxes on petroleum products should be made on taxes collected by the federal government like Petroleum Development Levy if it did not want to impact the prices.

The committee decided to have a hearing from the provincial government as well before finalising its recommendation.

The committee was also informed that the National Economic Council had approved limits for all the provincial governments to contract domestic borrowing which should not go beyond 0.5 per cent of GDP.

A representative of the Ministry of Finance told the committee that provinces could negotiate external loans but these have to pass through the Economic Affairs Division and appear on the federal government accounts. The provinces could not on their own secure international loans.

It was informed that debt borrowing limit from domestic sources was worked out at Rs153bn for the current year which actually came down to Rs112.59bn after accounting for federal adjustments.

As such, the Punjab government could borrow up to Rs61.75bn, followed by Sindh at Rs20.05bn. KP and Balochistan have the powers to borrow up to Rs16.88bn and Rs13.91bn, respectively.

Published in Dawn, August 20th, 2015

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