PETROLEUM PRICES: IMPACT ON INDUSTRY
By SYED M. ASLAM
Mar 24 - 30, 2003
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 offer."
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 LOSS
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 promising.
"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 international markets."