SUBSIDY HULLABALOO & REALITY BENEATH

SHAMIM RIZVI
(feedback@pgeconomist.com)

Apr
18 - 24, 2011

The latest increase in the prices of petroleum products has unleashed a new wave of inflation adding further to the already unbearable cost of living for majority of the people of the country. The government should have anticipated the negative reaction by the public throughout the country who described it as a petrol bomb.

The Prime Minister who faced a tough time in a session of the Senate when the opposition as well as allied parties staged a protest walkout and later subjected the ruling class to sever criticism for their anti-people policies. The Prime Minister could resume the business of the house only after assuring the protesting members that the government would reconsider the decision and provide maximum relief to the public. The House believed his literal give-and-take business had become almost a routine and a regular happening and three such reversals had taken place during the last few months. But, surprisingly, this assurance given on the floor of the House on the 4th of this month has not been fulfilled so far.

On the contrary, the Finance Minister came out with a public statement that the government was already subsidizing the sale of petroleum products and had no money in the kitty to subsidize it further. The Prime Minister also said the same thing but in a gentler way. He said that the government was already giving a subsidy of about Rs35 billion, but we were trying to find ways to provide further relief to the public.

According to knowledgeable sources, the government claim of providing a subsidy on the sale petroleum products is totally baseless. They had never given any subsidy in the past nor are they giving now. According to them, the government is behaving like a business tycoon, which considers a drop in profit as a loss. Instead of giving any subsidy the government has pocketed a whopping sum of Rs163 billion in the first six months (July-December 2010) in the current fiscal year in the form of various taxes like custom duty, sales tax, federal excise duty, and petroleum development levy (PDL). The government has been kind to not charge PDL on the latest increase of petrol prices and this drop in government revenues is being described as a subsidy. Actually, the government had envisaged collecting Rs120 billion in the shape of PDL but due to this concession the expected revenue is around Rs70 billion during the year. Out of this expected shortfall of Rs50 billion, Rs30 billion has already been registered during the first 9 months (up to March) which is being repeatedly quoted at every forum as subsidy by the government.

According to the reports, the Prime Minister Gillani has asked the ministry of finance to discuss the formula of POL prices with other political parties to find out ways and means to cut down the recent 13 per cent hike in the prices of POL products. Sources in the ministry told this correspondent that the finance minister was in contact with political parties and discussing the possibility of reducing the prices of POL products. So far, a meeting has been held with a delegation of ANP. Such meetings will also be held with other political parties in due course to reach some conclusion. There was no clear timeframe and it seemed clear that no decision would be possible in the current financial year.

Informed sources were almost of unanimous view that there was no truth in the government claim that it was providing any subsidy on POL products. Subsidy means negative taxation, but the fact of the matter is that the government collected over Rs163 billion from taxes on POL products during the year. The share of taxation on POL products is the largest contributor to FBR revenues. The board collected Rs163.8 billion on POL products including Rs7.8billion in the shape of custom duty, Rs54.9 billion through sales tax at import stage, Rs63.3 billion as sales tax on domestic sale, Rs35 billion in the shape of petroleum development levy during the first six months of the ongoing financial year. Last year it collected Rs351 billion in taxes on POL products including Rs25 billion custom duty, Rs100 billion sales tax at import stage, Rs114 billion sales tax on domestic sale, and Rs112 billion petroleum development levy. It is really surprising that how a government which collects so much revenues from sale of petroleum products can claim that it is giving any subsidy to the consumers? In fact, the government is fleecing the consumers.

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 common persons contrary to all its promises made to the masses during its election campaign. As a matter of fact, it is also following pro-rich and pro-elite policies totally ignoring the common persons. Instead of increasing taxes on the fabulously high profits margins by big business mafia like oil companies, cement, sugar and other corporate sectors, the fabulous income of the landed aristocracy and bringing the surging black economy into tax net, it is resorting to indirect taxes mostly hurting the poor. The poor and the common persons have suffered the most during the last 3 years of PPP government. Never before in the history of Pakistan, the prices of food items had gone up by over 150 percent during a short period of two years.