IF THE WORLD oil price goes on rising in the manner it has been due to the threat of attack on Iraq or other related factors, can Pakistan do anything to bring down the domestic price of oil?

It certainly can and that is by bringing down the hefty tax or surcharge on petroleum products which in the case of petrol is as high as hundred percent if not more and that tax this year will yield Rs45 billion, which is ten percent of the total tax revenues of the country. The principle of taxation on imported goods is if their import prices go up due to any cause including heavy devaluation of the rupee, the tax on that commodity is brought down so that the consumers are not hit too hard or the economy disrupted altogether and the growth rate brought down. And when the prices of the imported commodities go down, later the duty is raised so that the targeted revenues are collected if not this year the next year and so on.

But in Pakistan the government goes on raising petroleum prices as the import prices rise and when their prices come down as they did two years ago to nine dollars a barrel, the government pockets the gains altogether instead of passing on any part of that to the over-taxed consumer.

So the Pakistani consumer is hurt both when the world prices of oil are very high as well as when they are low because of constant high price of oil at home regardless of whether the world oil prices are high or low. This vicious circle has to be broken now when the world price of oil is touching almost $31 with the possibilities of a further rise short of a miracle.

In 2000-2001 the revenue from petroleum and natural gas surcharge was Rs33 billion but the budgeted figure for the next year was Rs 47 billion and the actual revenues following the fall in world oil prices was Rs54 billion, so the projected revenues from surcharge on oil and gas is Rs60.5 billion. But while the surcharge on petroleum alone is Rs44.5 billion as against Rs39 billion collected last year, exceeding the revenue target by seven billion. As a result instead of the revenues from surcharge of Rs33 billion in 2000-2001 the government will be getting Rs60.5 billion this year. This kind of hefty taxation has been raising the price of petroleum products constantly while the Petroleum Advisory Committee attributes the price rise to the world price of oil.

The government feels encouraged to do that as the IMF too supports it and approves all measures which increase revenues and reduce the budget deficit and that enables the government to go raising the price of oil on a pro rata basis and pocketing the large revenues through the surcharge, for all the high surcharge revenues the collection from oil and gas, is not shown as taxation but only as surcharge with the argument that the revenues from the surcharge fluctuates.

But revenues from other sources also fluctuate for example import duty revenue and that does not bar the government from describing such revenues as taxes, so why tax the people so heavily in a crucial sector and yet maintain that the people are paying very low taxes.

The fact is tax on petroleum has a multiplier effect on prices as a whole as that increases the cost of transportation, the price of power for industries as well as consumers, and enhances the cost of maintaining commercial establishments. Hence the low growth rate in Pakistan of 4.5 per cent as officially projected for this year is attributable, among other factors, to the high price of petroleum as well.

The country cannot have high prices of petroleum products at one end and relatively high interest rates at the other and yet sustain a high level of growth in a country with a population growth of 2.6 percent or more.

Hence the government has to lower the surcharge on petroleum now when the world price of oil is going up and up and increase the surcharge later as the world price of oil comes down. The government should not have a very short term approach to the issue and hold the country to ransom in the name of reducing the budget deficit and instead adopt a medium term approach so that what is lost today is regained tomorrow.

Let the IMF and the World Bank be persuaded to accept such a productive approach instead of sticking on to the old policy of maintaining heavy surcharges for the sake of macro economic balance which has been pretty elusive for quite some time now.

The price of oil in USA has already crossed $31 a barrel following the steady depletion of its stocks. How far will it rise as a war with Iraq nears is not obvious now. Saudi Arabia has said it could pump more oil if the world price of oil shoots up.

Meanwhile, more finds of oil at home as have been reported from Adhi oil wells by foreign companies leave the Pakistanis cold. Under agreements with such companies Pakistan has to pay them world prices for the oil they find here. And if the companies become richer in the process, the government becomes far more rich through the various levies on oil.

Meanwhile, the revenue collection in the first quarter of this financial year ending September 30 has been encouraging. The collection of Rs 90.2 billion has exceeded the target by Rs0.2 billion,as the finance minister announced. However, the revenue target of Rs 460 billion for the year may have to be reduced by Rs2- 2.5 billion following the withdrawal of the sales tax of 15 per cent from medicines as a whole.

The governor of the State Bank of Pakistan, Dr. Ishrat Hussain, has meanwhile come up with a plea for Pakistan adopting a long term approach to the economic problem instead of short term measures. “We have to think like China and think in decades” he says. The need is for the continuity of policies and a long term vision, he stresses.

That in the current period should mean the government does not opt for pushing up oil prices at home by adding a hefty oil surcharge to the rising oil prices, but soften the blow and enable the people to bear the heavier burden of higher oil prices in a gradual manner.