UNFAIR OIL PRICING

SHAMIM AHMED RIZVI
Oct 27 - Nov 02, 2008

In a shocking development, the so called people government has stunned the people of Pakistan by refusing to pass on the benefit of the reduction in the price of oil in the international market. Despite recommendations of the Oil and Gas Regulatory Authority to cut prices of Petrol and diesel by Rs.5 and Rs.3 respectively from October 15, the Government announced to keep the oil prices unchanged.

In the International Market crude oil prices have sharply declined, coming down from $147 per barrel by $73% over last few weeks. In violation of its own declared policy to pass on the benefit of falling prices of oil to the consumers and its repeated claims of working for people welfare, the Government has decided to use this opportunity to boost its own revenues. The Government has revised upward Petrol development levy (PDL) from Rs.17.57 a litre to Rs.23.12 from October 16 in addition to general sales tax of Rs.11.26 per litre. It has been done by a Government which has been pledging to its voters and general public to provide them relief from the rising prices. It has been done at a time when consumers were desperately expecting some relief from ever-rising inflation as a result of reduced prices of petrol and petroleum products. You do not have to be an economic expert to understand that the ever rising transport cost is the biggest single contributor to rising food prices and other consumer's items.

A source in the Ministry of Petroleum told this correspondent on condition of anonymity that the decision of the Government also came as a shock to them because the ministry had fully supported the proposal given by the OGRA. It was taken at the highest level on the intervention of the Ministry of Finance who was all out to boost its revenue by hook or crook. It was of the view that the public at large had mentally accepted the existing level of prices and there would be no serious protests from the public if the previous level of pricing is maintained. The government, with the move to increase PDL, will generate windfall additional income of Rs.5.5 billion per month just on petrol if kept in view its consumption in 30 days which stands at 1 billion liters. The government may also pocket additional more than Rs.2 billion by increasing the PDL by Rs.7.14billion on HOBC meaning by that the government would pocket in to around over Rs.7 billion per month additional. The government is at present earning over Rs.25 billion on petrol. With this increase the net government taxes have gone up to Rs.34 per litre, the source confided.

It appears that the so-called people government is totally oblivious of the difficulties of the people as it is taking measure after measure to add to the burden of the common person contrary to all its promises made to the masses during its election campaign; the present government is also following pro-rich and pro-elite policies of Musharraf/Shoukat Aziz Government. Instead of increasing taxes on the fabulously high profits by big business mafia like oil companies, cement, sugar, CNG and other corporate sector and bringing the surging black economy under the tax-net, they are resorting to indirect taxes to enhance its revenues.

Last month when the Government increased the prices of diesel and kerosene oil by Rs.3.5 per litre, the Government came out with a lame and misleading explanation that it cannot afford to pay for the subsidies given to the consumers on these items. In spite of high subsidy claims the government was earning over Rs.70 billion annually from the sale of oil and oil products. The government collected about Rs245 billion as sales tax and other levies on oil and gas during financial year 2007-08 and subsidized their prices by about Rs. l75 billion earning a net profit of about Rs.70 billion on oil business. The government has been talking about subsidies it provided to the consumers on oil products without mentioning much higher revenues it recovered from the consumers on the same products. Had the government removed taxes and surcharges on petroleum products or at least freased them with unprecedented increase in prices of oil in international market, there would have been no need for subsidies and the economic growth would have remained unaffected, an insider told page.

Instead, higher economic growth might have resulted in higher tax revenues, he said, adding this could be one reason for the decline in revenue collection from 21.7 percent of GDP in 2006-07 to about 19.2 percent of GDP in 2007-08.

According to the financial data released by the federal government recently, the government collected about Rs89 billion as development surcharge, royalties and others discounts on oil and gas during 2007-08. Besides it recovered general sales tax of about Rsl20 billion on oil products and about Rs35 billion on natural gas sales during last financial year. As such, total revenue collected on the sale of oil products and natural gas stood at Rs245 billion. In contrast, the government provided about Rsl75 billion as subsidies on oil products during the year 2007-08. Therefore, the government earned about Rs70 billion of net profit on oil and gas business as a whole after paying Rsl75 billion in subsidies. Official data suggests that the government recovered about Rsl4.5 billion as development surcharge on petroleum products, Rs20.7 billion development surcharge on natural gas, Rsl8.6 billion discount retained on crude oil and another Rs35 billion as royalties on oil and natural gas, making a total of Rs89 billion.

These sources said as the petroleum prices increased in the international market, the government's share proportionately went up because of 15 percent general sales tax. For example, the GST on motor spirit that stood at Rs7 per litre on petrol in February 2007 increased to about Rsl2 per litre in July 2008, and jacked up government revenue by about Rs5 per liter. Likewise, the GST on HOB (High Octane Blending Component) increased from about Rs5.50 per liter in February 1 to Rsl3 per liter in July 2008, providing a windfall of about Rs4.5 per liter. The GST on kerosene also increased from Rs4.60 per liter in February to about Rs8 per liter by end of June 2008. The GST on kerosene also increased from Rs4.60 per liter in February 2008 to about Rs8 per liter by end of June 2008. The GST on diesel also increased from about Rs4 per liter in February 2008 to Rs8 per liter in June 2008, providing a substantial revenue increase to the government. Apart from GST, the government also kept on charging development surcharge on petrol and HOBC that fluctuated between Rs3 to 12 per liter with the exception of a couple of months when surcharge was done away with on temporary basis. Oil and gas sector was the single largest contributor in the Rs385 billion of total general sales tax collection during 2007-08, the officials said.