THE widespread public anger over the latest increase in domestic petrol and diesel prices was not unexpected. The hefty hike in motor fuel prices has already stoked a fresh round of inflation, sending the cost of transport, food, clothing and other essential items to new heights, and causing more financial stress to households. The popular outrage against the soaring fuel costs is so cogent that even allies of the ruling PTI have been forced to demand the immediate withdrawal of the increase. The PTI’s response has lacked compassion for a vast majority of households already struggling to make ends meet. A minister, for example, has advised people to “use as little fuel as possible”. He didn’t elaborate how. Should they stop going to work or sending their children to school? Other ministers blame the rising global oil prices for the hike in domestic fuel costs. Indeed, the recent surge in fuel costs this year has been primarily driven by geopolitical factors such as Russia’s ongoing military build-up near Ukraine rather than anything in the government’s control. The price of the benchmark Brent crude futures is closing in on $100 per barrel, the highest since 2014. International oil market analysts are anticipating Brent will hit $120 by June owing to Covid-related supply gaps. Yet the government cannot entirely blame global markets for the pain inflicted on motorists at the pumps.

Besides surging global oil prices, recent FBR data suggests that taxation on petroleum products is the other key factor responsible for the spike in domestic fuel costs. The FBR has collected Rs287bn in indirect taxes from petroleum products in the first seven months of the present fiscal, up by 72pc from a year ago. There is no doubt that the government has given the people some relief by forgoing part of its tax revenues on petroleum products. However, at the same time, it has imposed a 17pc sales tax on crude oil imports and doubled customs duty to 10pc in the budget. Additionally, it has agreed with the IMF to hike the petroleum levy by Rs4 a litre every month till it hits the ceiling of Rs30. That the share of taxes from petroleum products in the total FBR collection has jumped to 8.5pc from 6.5pc last year shows that it remains a major source of revenue generation for it.

The situation is difficult not only for consumers but also for the government since the surging prices in the international market and increasing oil imports are putting more pressure on our meagre foreign exchange reserves. Still, the government should think of further slashing taxes on petroleum products to provide the people some breathing space in a highly inflationary environment. Moreover, it must force the oil-marketing companies importing the bulk of their motor fuel inventories duty-free from China under the FTA to share at least half of this tax advantage with consumers.

Published in Dawn, February 18th, 2022