The latest fortnightly revision of petroleum prices
pushing the retail prices to new highs on the 16th of this month has
drawn sharp reaction from the business, trade and industry. The reaction
to the record petroleum prices threatens to push production,
transportation costs as well as steep rise in a prices of raw materials
used the manufacture of goods in the country.
Sources within the industry expressed apprehensions
that the increase would have a serious impact on the exports by pushing
their prices to render them incompetitive in the international market.
Before highlighting the impact of the increase with specific focus on
exports lets see what's the increase been like this time around. The
retail price of motor gasoline, the most used variety of petroleum,
registered a sharp increase of 3.83 per cent to Rs 37.11 per litre. The
price of High Speed Diesel went up by 3.47 per cent to Rs 25.93 while
the prices of kerosene oil, high octane and light diesel also registered
a sharp increase.
Talking to PAGE, the former president of
Karachi Chamber of Commerce and Industry (KCCI) Zubair Motiwala said
that international prices of oil have to do less with the rising
petroleum prices in the country. It has to do more with the heavy
taxation and levies that petroleum and petroleum products are subjected
to help the government collect more revenues, an opportunity which no
other product or good offers."
He said that the total incidence of taxes on
petroleum and petroleum products adds up between 55-60 per cent of which
40 per cent is in the form of indirect taxes and the remaining comprise
of such direct taxes as sales tax. "The massive usage has made
petroleum as ultimate revenue collecting tool for the government because
it offers tax collecting potential which no other product or good
The infatuation with petroleum as the premier revenue
collecting tool by the successive governments, including the one in
power today, has resulted in pushing the prices to the record highs at
present long before the Oil Companies Advisory Committee was established
last year to review the prices every fortnight.
GOVERNMENT: THE CUSHION CAN HELP IT ABSORB THE REVENUE
Zubair told PAGE that the incessant increase
in petroleum prices have pushed the production and shipment costs which
can be a blow to the industry, particularly the export-oriented ones.
"The national flag carrier Pakistan International Airline (PIA) has
already levied a Rs 5 fuel surcharge on every kilogram of exports.
Rising petroleum prices have also pushed prices of many raw materials.
For instance, the price of the polyester fibre has risen from Rs 55 per
kilo to Rs 75 per kilo depicting a sharp increase of almost 37 per cent,
an unaffordable increase indeed. Rising petroleum prices is the single
most important factor to push the price of polyester fibre whose
manufacture require high quantity of petroleum.
"High taxes and levies provides the government
with workable choices to absorb any losses if it chooses to reduce the
taxes to give the much needed relief at present. The cushion makes it
possible for the government to absorb any loss of revenue without
passing it to the consumers for the greater interest of the industry and
people. The prevalent unemployment and problems faced by the industry
amidst the situation in Iraq make it all the more necessary to absorb it
because we are passing through an extraordinary phase.
"This extraordinary situation necessitates that
the government should fix the petroleum and products for the next few
months until situation stabilises, if not normalizes, in the region.
Extraordinary situation demands extraordinary solutions and fixing the
petroleum prices would not be hard as our foreign exchange reserves have
crossed $ 10 billion mark and the economic situation also looks
"Fixing the petroleum prices would help arrest
rising costs of production as well as prices of raw materials needed by
the export-oriented industry to let exports maintain competitive edge in
the international markets. This is particularly true for cotton and
textiles, the biggest foreign exchange earner for the country, which is
the biggest consumer of polyester fibre, the price of which has risen
sharply to undermine the exports. It is all the more necessary as
foreign buyers have put textile orders on hold due to the war in Iraq, a
situation which did not happen even after 9/11."
SUSPENSION OF DUTIES AND TAXES
Talking to PAGE, former chairman of SITE
industrial area Majyd Aziz urged the government to suspend all levies
and taxes on petroleum for next 2-3 months until the oil prices
stabilizes. "Of course the government would loose revenue the
cushion it enjoys makes it possible for it to absorb the resultant
revenue loss. The short term loss would actually be a long term gain for
the government as shedding of value by the dollar, increasing prices of
local inputs like cotton and rising production costs would otherwise
render a range of exports incompetitive in the international markets. As
is, the prices of textile exports from Pakistan have already registered
an average decline of 10-15 per cent and even more in many cases. The
suspension of levies and taxes on petroleum is a must to keep Pakistani
exports competitive without which they would loose places in the