PETROLEUM PRICES
TIME TO CUT TAXES

Any increase in the prices of petroleum products automatically push costs of all other products, services and trade

By Syed M. Aslam
  Feb 24 - Mar 02, 2003

The latest increase in the prices of petroleum prices is seen by many as a prelude for greater increases in the weeks to come. The consumers in Pakistan are bracing themselves for increase prices as the clouds of war hang thick over Iraq and, in part, also as they realize that they have no representation on Oil Companies Advisory Committee, a representatives body of oil marketing companies and the sole decision maker of the fortnightly price review practice.

As is, the prices of petroleum products have registered a sharp increase of over 17 per cent since the beginning of this year. Petroleum prices in Pakistan, thus, have already touched unaffordable level not only to the chagrin of a common consumer but also to the discomfort of the industry and trade. Any increase in the prices of petroleum products automatically push costs of all other products, services and trade.

The Oil Companies Advisory Committee and oil marketing companies increased the prices of petroleum products by as much as 7.6 per cent on the 16th of this month. The retail price of motor gasoline was raised by 4.7 per cent from Rs 32.96 to Rs 34.51 per litre; kerosene oil by 7.41 per cent from Rs 21.32 to 22.90 per litre, Light Diesel oil by 6.99 per cent from Rs 18.30 to Rs 19.58 per litre, High Speed Diesel by 7.59 per cent from Rs 21.72 to Rs 23.37 per litres and High Octane by 4.29 per cent from Rs 36.83 to Rs 38.41 per litre.

What has turned up the alarm bells even louder is that the Federal Minister for Information and Media Development, Shaikh Rashid Ahmed, hinted at huge surge in petroleum prices on the same day the new petroleum prices were announced. There are many who feel that the statement was aimed at mentally preparing the people to absorb the imminent 'oil shock' the world is facing when the US choose to attack Iraq.

While the government can not do anything to avert the looming surge in oil prices it can certainly do a number of things to help already unaffordable prices in check. First of all, it can reduce the heavy levies of taxes on the petroleum products. Just how heavily taxed the petroleum products are is evident from the fact that over half of the retail prices of petroleum products in Pakistan, particularly the motor fuel, comprise taxes and levies. Government after successive government has found it fit to use oil as the most convenient tool to enhance its revenue, and even to balance any shortfall therein as and when required.

This trend on the part of the successive governments to use petroleum as the ultimate revenue collecting tool has its basis in the fact that oil is the lifeblood of all human activities today be it economic, social, industry, trade or otherwise. Certainly the country is heavily dependent on imported oil and during the first seven months of the current fiscal ended January 31, import bill of crude oil and oil products stood at $ 1.7 billion depicting an increase of 13.1 per cent over the comparative period the previous year. However, norms of fairness dictate that consumers should not be made the escape goat in a matter over which they have no control and thus should not be forced to absorb highly unjust taxes and taxes because oil imports are costing an arm and leg to the economy. The oil should neither be treated as an easy revenue generating tool nor it should be seen as an ultimate commodity to earn huge profits fast.

Surcharge on petroleum and gas would help the government collect about Rs 61 billion this fiscal. One-third or about Rs 45 billion of this would come alone from the petroleum surcharge which would be Rs 6 billion more than the last year. Reducing taxes and levies on petroleum is also imperative because in case of a war in Iraq the international prices of petroleum are feared to increase drastically to inflate the prices over to uneconomic level for the industry, trade, business and all over. Failure to reduce the taxes and levies on petroleum sent production costs to uneconomic levels to hurt exports and local consumption. Common sense dictates that cutting the levies and taxes to cut 'profit margin' to decent level amidst steep rise in international oil prices is the only remedy to save the economy from total collapse in case of a war.

Secondly, and as important, the trends show that the Oil Companies Advisory Committee's fortnightly price revision is a non-transparent process. There is a great conflict of interest as the price review process is left in the hands of oil marketing companies and there is no representation of the consumers. Over the months, the price reviews have failed to reflect changes in international oil prices failing to pass off benefits to the consumers even when it was due or only passing it off to a certain limit. On the other hand, the process is marred by price increases in most of the cases.

The national press has also remained indifferent to highlight one another extremely important factor the drastic shedding of value by dollar against the rupee. Despite drastic erosion of dollar, which has shed 15 per cent of its value trading at around Rs 58, the consumers have systematically being denied all benefits in last year-and-half. Even the benefits of record low international prices of the crude oil of under $ 10 a barrel two years ago was not it passed to the consumers. It's time to abolish the unethical practice of increasing the prices without ever passing off benefits to the consumers in the greater national interest.