The first order of business after Ishaq Dar took oath as the federal finance minister was to announce a reduction in the price of petrol by 1.8 rupees per litre (instead of the 3.67 rupees per litre recommended by Oil and Gas Regulatory Authority) and high speed diesel (HSD) by 2.5 rupee per litre (instead of the 5.7 rupees per litre recommended by Ogra). The sales tax on these products is on a percentage basis hence any reduction/increase in their price will have an automatic negative impact on budgeted revenue collections which, in turn, accounts for frequent adjustments in the rate of tax as and when the international prices of these products decline or rise. The Statutory Regulatory Order (SRO) issued by the Federal Board of Revenue noted that the sales tax on petrol will remain unchanged however it reduced the sales tax on HSD from a whopping 40 percent to a not so low 35.5 percent. The net outcome of the decision specific to these two petroleum products would be to generate an additional 3.26 billion rupees for August in comparison to July.
Kerosene is not taxed while light diesel oil (LDO) was taxed at the rate of 1.5 percent in July. The consumption of these two products is largely by the poorer sections of society; it has, therefore, little or no prospect of any meaningful boost. However, based on the rise in their international price Ogra, adhering to a strictly stipulated formula, recommended that kerosene price be raised by 13 rupees per litre and LDO by 10.01 rupees. Dar rightly decided not to raise the price of either of these products and, as per the SRO, reduced the rate of tax on LDO from 1.5 percent to zero. However, given the low consumption of these two products and the fact that kerosene was not taxed and LDO was taxed at a very low rate Dar's decision to keep their prices constant would require a subsidy of only 230 million rupees.
Or in other words, once the math is done, the actual net increase in government revenue sourced to petroleum and products for August would be a whopping just under 3 billion rupees (3.26 billion rupees minus 230 million rupees) and therefore the claim that the government did not pass on the Ogra recommended lower price for petrol and HSD because of the need to absorb the recommended price rise of kerosene and LDO is simply hogwash. It is extremely unfortunate that such decisions taken frequently by Finance Minister Dar with the overarching objective of keeping the budget deficit within sustainable levels, account for a widening differential between the input costs of domestic manufacturers with their regional competitors and are a major reason for falling exports in recent months.
To conclude, it is baffling that the Finance Minister continues to make inaccurate claims by, no doubt, relying on the inability of the general public to challenge his claims. This is extremely unfortunate and one would hope that he adjusts his perceptions that are rooted in 1999's Pakistan (the time the party was last in power) when the state-controlled media could effectively contain all challenges to flawed policies and obviously inaccurate claims. A more meaningful approach would be to engage in a cost benefit analysis to determine the pros and cons of any and all decisions.
Copyright Business Recorder, 2017