Petroleum levy increased by up to 106pc

Published March 2, 2020
Facing a revenue shortfall of over Rs480 billion in the first eight months of the current financial year, the government has increased by up to 106 per cent the rate of petroleum levy on various oil products to raise an additional revenue of Rs10bn per month, or at least Rs40bn by June 30. — AFP/File
Facing a revenue shortfall of over Rs480 billion in the first eight months of the current financial year, the government has increased by up to 106 per cent the rate of petroleum levy on various oil products to raise an additional revenue of Rs10bn per month, or at least Rs40bn by June 30. — AFP/File

ISLAMABAD: Facing a revenue shortfall of over Rs480 billion in the first eight months of the current financial year, the government has increased by up to 106 per cent the rate of petroleum levy on various oil products to raise an additional revenue of Rs10bn per month, or at least Rs40bn by June 30.

Documents seen by Dawn suggest the ministry of finance increased the petroleum levy on high speed diesel (HSD) by Rs7.03 to Rs25.05 per litre for March, from Rs18 per litre in February. This is estimated to generate an additional revenue of Rs4.6bn per month.

Sources said that based on existing tax rates, the Oil and Gas Regulatory Authority (Ogra) had worked out a reduction of Rs12.04 per litre (9.5pc) in the ex-depot price of HSD, but the finance ministry persuaded the prime minister to reduce its price by Rs5, or just 3.9pc. With a 9.5pc cut, the HSD price would have gone up to Rs115.2 from Rs122.25 per litre fixed by the government.

The step will collect Rs40bn additional revenue by June 30

Likewise, the government raised the rate of levy on petrol by Rs4.75 to Rs19.75 from Rs15 per litre, showing an increase of almost 32pc. The higher levy on petrol is estimated to fetch an additional revenue of about Rs3.6bn a month. Here too, Ogra had calculated a price cut of Rs9.76 per litre (8.4pc), but the finance ministry passed on only Rs5 (4.29pc) reduction to consumers. The petrol rate should have been Rs106.84 per litre instead of Rs111.60 fixed by the government. The total tax on HSD now works out at Rs45 per litre.

Similarly, the levy on kerosene was increased from Rs6 to Rs12.33 per litre, showing an increase of 105.5pc. This would roughly create an additional revenue stream of about Rs65 million. The petroleum levy on kerosene is now the highest since April 2009. Ogra had worked out a reduction of Rs13.33 (13.4pc) to Rs86.12per litre, but the finance ministry brought it down by Rs7 per litre. The total tax on petrol now stands at Rs39 per litre.

The petroleum levy on light diesel oil (LDO) was increased from Rs3 to Rs4.94 per litre, showing an increase of 65pc or Rs1.94 per litre. This will have an additional impact of about Rs30m per month. The regulator had suggested a reduction of Rs8.94 per litre in LDO rates, but the finance ministry did not allow a reduction of more than Rs7.

This is despite the fact Dubai crude rate had come down from $62per barrel on January 31 to $50 a barrel on February 28, down 19.35pc. On the other hand, the benchmark Brent fell from $60 a barrel to $51 a barrel, down 18.33pc. In comparison, the prices of diesel and petrol in the local market were reduced by about 4pc.

The sources said that with no hopes of a substantial increase in the rate of tax collection by the Federal Board of Revenue in the remaining four months of the current fiscal year and additional financial requirements arising out of subsidies to export industries, the adviser to the PM on finance had no other option but to go for increasing petroleum levy.

The government has already increased general sales tax on all petroleum products to a standard rate of 17pc across the board to generate additional revenues. Until January last year, the government was charging 0.5pc GST on LDO, 2pc on kerosene, 8pc on petrol and 13pc on HSD.

As a result, the government is already estimated to have collected almost 44pc higher revenue on key oil and gas products in the first half of the current financial year despite a 10pc reduction in domestic production and 20pc fall in imports.

As such, the oil and gas sector is emerging as the single largest contributor to the country’s revenue stream. Three major factors are estimated to have contributed to the surge in petroleum revenues, including a substantial increase in various tax rates, removal of legal challenges and higher international prices.

Besides the 17pc GST, the government has more than doubled the rate of petroleum levy on HSD in recent months to Rs25.05 from Rs8 per litre, while levy on petrol had also been increased to Rs19.75 instead of Rs10 per litre. The petroleum levy on kerosene and LDO has been increased to Rs12.33 and Rs4.94 per litre instead of Rs6 and Rs3, respectively.

Over the past many months, the government has increased petroleum levy rates to partially recoup a major revenue shortfall. The levy remains in the federal kitty unlike GST, which goes to the divisible pool taxes and thus about 57pc share is grabbed by the provinces.

The petrol and HSD are the two major revenue earning products for the government because of their massive and still growing consumption in the country. Total HSD sales are touching 600,000 tonnes per month against a monthly consumption of around 750,000 tonnes of petrol. The sales of kerosene and LDO are generally less than 10,000 tonnes per month.

Published in Dawn, March 2nd, 2020

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