WHEN in opposition, Prime Minister Imran Khan would often censure the government for burdening fuel consumers with heavy taxation on petroleum products. The party leadership often spoke about how damaging it was to use the petroleum levy for revenue to make up for the tax shortfall. So when the PTI came to power, many thought it would do away with the levy to provide relief to consumers stricken by elevated price inflation. Instead, the rates were raised to get more revenue as plans to fix the corrupt and inefficient tax system fell apart. The revenues generated by the government in the first half of the present fiscal from petroleum levy have spiked by 3.4 times to Rs275.3bn from Rs81.9bn two years ago and almost doubled from Rs137.95bn a year ago. The collection accounts for a little over 61pc of the budget projection of Rs450bn for the entire fiscal under this head.

Successive governments have used this levy to increase revenues in the face of their failings to widen the tax net and boost collection to meet their ever-increasing expenditure. Under the previous PML-N administration, which amended the Petroleum Products (Petroleum Levy) Ordinance, 1961, through the Finance Act, 2018, in order to secure parliamentary approval for increasing the levy by up to Rs30 a litre, the six-month collection had peaked to Rs93.84bn although it never charged more than Rs6-Rs14 per litre on different products. Experts argue that a non-tax levy cannot be imposed or its rate increased through a money bill. The PTI government had indicated previously that the amendment would be withdrawn. But now it is uncertain whether it will do so. With petroleum levy becoming the single largest non-tax revenue source for the finance ministry after the profit of Rs375.50bn shown by the State Bank, it’s hard to imagine the cash-strapped administration slashing its rate let alone withdrawing it. The levy not only allows the centre to recoup the massive losses in tax collection but also to retain the entire collection for its own use to the chagrin of the provinces because it does not form part of the divisible pool under the NFC award. The fuel levy may have become an important source of revenue for the government but it is a big burden on people and adversely impacts economic growth. Stronger revenue collection should come from an efficient tax system, which creates incentives for the growth drivers, rather than from non-tax levies.

Published in Dawn, February 8th, 2021