THE absurdity of lowering the price of oil while raising the taxes levied has highlighted the state’s fragile revenue base.
One would have thought that the sharp declines in the price of oil all of last year would be a welcome development for a country such as Pakistan, where oil makes up almost a third of the total import bill.
The declines have brought some comfort to the external account and helped build reserves. But the downside of the declines has come in the form of revenue loss, as well as difficulties in getting oil companies to maintain stocks for fear of suffering inventory losses.
Also read: Gas tariff increased by up to 67pc
Ironically enough, on the same day as the country digested news of the double movement in the price of oil, PSO announced its financial results, telling us that due to a 46pc price decline in the international market, the company saw a rise in the sales volume, but a 21pc drop in sales turnover and a sharp drop of 68pc in after-tax profitability.
Fears of revenue loss have given us absurd movements where price declines are offset by hikes in taxes. This is the third time we have seen this government resort to such tactics, the first time being in December and the second in February.
It is understandable that the government would feel compelled to do this since taxes on oil make up a significant share of the total revenues. The taxes have been hiked at the pump not only to offset price declines, but also to help bridge revenue shortfalls, as happened in May when a regulatory duty and a hike in GST were passed just to help meet the revenue target.
In the power sector too, surcharges have been imposed to reduce the impact of a downward revision of oil prices on the power tariff, and hence government revenue. In June, a commitment was given to the IMF that only limited amounts of the decline in the oil price would be passed through to the consumers to minimise the adverse revenue impact. It is dismaying to witness this, primarily because there was a commitment made, when domestic pump prices were fixed to international prices, that all movements in international prices would be reflected at the pump.
Clearly, that commitment has proved untenable to deliver on, and the reason for this is that we have failed to bring about the required reforms to diversify the revenue base of the state.
Published in Dawn, September 2nd, 2015
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