The LTU has collected Rs 4,414.36 million from the sale of five major POL products in the last fiscal year against Rs 10,874.44 million in 2003-04, reflecting a decrease of Rs 6,460.08 million.
According to a report prepared by LTU Karachi, the pricing mechanism of POL products was analysed to ascertain the actual shortfall in the sales tax.
In this connection, the relevant data was collected from the oil marketing companies and Oil Companies Advisory Committee (OCAC).
The analysis carried out on the basis of data for selected products viz. motor spirit (MS), high speed diesel (HSD), kerosene oil, high octane blending component (HOBC) and light diesel oil (LDO) lying with the LTU.
The Karachi Large Taxpayer Unit collected Rs 3,123.29 million as sales tax from motor spirit in 2004-05 against Rs 3,269.07 million; Rs 1,246 million from HSD against 7,252 million and collection from HOBC was Rs 50.98 million in 2004-05 against Rs 35.47 million in 2003-04.
The meager GST collection was witnessed from kerosene oil and light speed diesel in 2004-05 against 2003-04. As oil-marketing companies are registered with the LTU Karachi, the decrease in GST collection from petroleum products has a negative impact on its overall performance.
The pattern of consumption of POL products in Pakistan during the last two financial years indicates that MS sale was 1,529,826,300 liters in 2004-05 against 1,675,070,784 liters in 2003-04; HSD: 8,719,185,300 liters against 8,667,057,788 liters; kerosene oil: 380,520,000 liters against 328,387,491.6 liters; and consumption of LDO was 316,470,000 liters in 2004-05 against 231,005,838 liters in 2003-04.
The data also revealed that the difference in sale prices remained higher in 2003-04 as compared to 2004-05. This occurred mainly due to increase of POL products world-wide whereas the sale values were artificially kept under control by the government to maintain the prices within affordable limits of the consumers due to regularising the sales value of POL products, the GST payment suffered badly as the sales tax is paid on value-addition which showed a drastic decline in fiscal 2004-05.
To further understand and clarify this fact, the actual incidence of sales tax per liter of the products has been calculated. The sales tax on MS was Rs 2.2 per liter in 2004-05 against Rs 2.07 per liter in 2003-04; sales tax on HSD was Rs 0.15 per liter in 2004-05 against Rs 0.87 per liter in 2003-04 and sales tax on HOBC was Rs 2.68 per liter in 2004-05 against Rs 2.52 per liter in 2003-04.
Thus the single factor which reduced the incidence of tax per liter in 2004-05 was price differential claim (PDC) which is a form of adjustment allowed by the pricing formula to keep the sales price low.
This component is actually deducted from the purchase price for the purpose of calculation of sales tax. This subtraction virtually results in negative value-addition thereby decreasing the incidence of tax as the difference between the sale and the purchase price gets narrowed.
In some months even the purchase price increased from the sale price and the OMCs, instead of paying any amount, virtually received carry-forward per liter.
The LTU said the sales payment suffered during 2004-05 as compared to 2003-04 when the PDC component was not in the field. The actual shortfall of sales tax due to decreased incidence of tax per litre.
The CBR lost Rs 6,668.55 million in only five POL products in 2004-05 all over the country. As the main marketing companies fall under the jurisdiction of LTU Karachi, so the brunt had to be sustained by the large taxpayer unit. Oil marketing companies registered with the LTU Karachi include Pakistan State Oil Company, Shell Pakistan Limited, and Caltex Oil Pakistan Limited which cater for more than 90 percent of national POL demand.
This LTU is, however, still working to calculate the revenue loss on other POL products like furnace oil, JP-1, etc, the report added.