Govt increases sales tax on petrol, diesel

Updated August 02, 2017

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Sales of petrol and high-speed diesel (HSD) generate heavy revenues for the government because of their massive and growing consumption. HSD sales are crossing 800,000 tonnes against the monthly consumption of 700,000 tonnes of petrol.—Reuters file photo
Sales of petrol and high-speed diesel (HSD) generate heavy revenues for the government because of their massive and growing consumption. HSD sales are crossing 800,000 tonnes against the monthly consumption of 700,000 tonnes of petrol.—Reuters file photo

ISLAMABAD: The government has increased the general sales tax (GST) rate on high-speed diesel (HSD) and petrol to 40 per cent and 23.5pc, respectively.

The move aims to generate windfall revenues for the government by not passing on the benefit of a fall in international oil prices to consumers.

The GST rates on HSD and petrol were jacked up through statutory regulatory orders (SROs) by 19.4pc and 14.63pc, respectively, to ensure that petroleum prices remained unchanged.

Officials of petroleum ministry were opposed to the rate hike

A senior government official claimed the prices were kept unchanged in the absence of a political government and the resultant absence of legal cover. “Considering special circumstances, prices will be maintained at the existing level till a decision by the competent authority,” the finance ministry had said.

However, it transpired that the revenue division was directed to notify an increase in GST rates through an SRO. The GST on HSD was increased from 33.5pc to 40pc, up 19.4pc. Likewise, the GST on petrol went up to 23.5pc from 20.5pc, an increase of 14.6pc.

Informed sources said officials of the petroleum ministry were opposed to the increase in GST rates and called for a reduction of Rs3.50 per litre for diesel and about Rs3 per litre for petrol.

These sources said the petroleum ministry believed the previous GST rates notified a month ago had the legal cover without any expiry.

The finance ministry, however, was not in favour of a cut and wanted to generate additional revenue by maintaining the prices at the existing level.

It was concluded that the Federal Board of Revenue (FBR) still had inherent powers under Sales Tax Act 1990 to change tax rates, notwithstanding the government’s decision to surrender the authority of issuing SROs without the approval of the Economic Coordination Committee of the cabinet or parliament.

As such, higher tax rates were fixed for the two key oil products. The officials said the highest GST rate of about 51pc was previously charged on HSD in January 2016.

Higher tax rates, if continued for the whole month, are estimated to generate about Rs8 billion of additional revenue.

The Oil and Gas Regulatory Authority (Ogra) had recommended a cut of Rs5.07 per litre for HSD and Rs3.67 per litre for petrol. It recommended an increase of Rs13 and Rs10 per litre for kerosene and light diesel oil, respectively.

On the basis of existing tax rates, Ogra calculated the new ex-depot price of HSD at Rs74.83 per litre instead of Rs79.90 for August. Likewise, it worked out the ex-depot price of petrol at Rs67.63 per litre instead of Rs71.30.

In contrast, Ogra recommended an ex-depot price of kerosene at Rs57 per litre from the existing rate of Rs44. Also, it proposed an increase of Rs10 per litre in the price of light diesel oil to Rs54 instead of Rs44.

Petrol and HSD are two major products that generate heavy revenue for the government because of their massive and growing consumption in the country.

HSD sales across the country are now crossing 800,000 tonnes per month against the monthly consumption of around 700,000 tonnes of petrol. Sales of kerosene and light diesel oil are generally less than 10,000 tonnes per month.

Published in Dawn, August 2nd, 2017