ISLAMABAD: Based on presumed higher tax rate, the government on Tuesday increased the prices of petrol and high speed diesel (HSD) by Rs1.71 and Rs1.52 per litre, respectively, with immediate effect for a month.

The announcement was made by Finance Minister Ishaq Dar who said that the government had passed on to consumers a partial increase recommended by the Oil and Gas Regulatory Authority (Ogra) and would absorb an additional Rs3 billion by not fully transferring the impact of higher international oil prices.

An official familiar with the situation said that the regulator had not followed legally notified tax rate in the case of HSD — the major source of revenue because of its massive consumption. He said the HSD price should have gone up by only 97 paisa per litre had the regulator applied 29.5 per cent rate of general sales tax (GST) notified by the Federal Board of Revenue (FBR).

Dar says govt not transferring full impact of higher international oil prices

Instead, the regulator relied on ‘secret instructions’ from the finance ministry through the petroleum ministry to apply 31pc GST while calculating HSD price build up. As a consequence, the regulator calculated an increase of Rs2.18 per litre and the prime minister and the finance minister graciously decided to increase only 1.52 per litre increase in diesel price.

“The regulator did not go into legalities because petroleum prices are deregulated,” said an informed source, adding that it simply acted as an accountant to work out prices as desired by the finance ministry.

The order issued by the finance ministry asked the regulator to “provide the working for Adjustment of Prices of Petroleum Products based on the Full PDL and Full GST for all petroleum products except GST on HSD. For HSD, the applicable GST rate should be incorporated in the working as notified in December for adjustment of prices of petroleum products which was 31 per cent applicable till 31st December 2016.”

The Ministry of Petroleum & Natural Resources and Ogra had recommended an increase of Rs2.96 per litre in the price of petrol, Rs2.18 per litre in the price of HSD, Rs17.55 per litre in the price of kerosene and Rs10.94 per litre in the price of light diesel oil (LDO) with effect from March 1, Mr Dar said.

However, “in consultation with and on the directive of the prime minister, we have decided to increase petrol and HSD prices by Rs1.71 and Rs1.52 per litre, respectively”.

Published in Dawn, March 1st, 2017