ISLAMABAD: The ministry of finance and the Federal Board of Revenue have expressed their inability to reduce petroleum levy or fix general sales tax on petroleum products, as recommended by the expert committee on oil pricing mechanism constituted by the Supreme Court for providing relief to consumers.
Sources told Dawn on Wednesday that after consultations with the refining industry, a committee of experts led by Petroleum Secretary Mahmood Salim Mahmood had informed the finance ministry that the only way to provide any long-term relief on oil prices was to fix per litre general sales tax on petroleum products instead of 16 per cent fluctuating rate and a reduction or elimination of petroleum development levy (PDL). The apex court had termed the levy a double taxation.
Faced with a shortfall in revenue collection and rising fiscal deficit because of higher than targeted current expenditure, the finance ministry and FBR were reluctant to reduce petroleum levy and GST in the wake of commitments with the International Monetary Fund. The IMF has been pressing the government to contain fiscal deficit within the budgeted target of 4.9 per cent. The government has exceeded fiscal deficit target by 0.3 per cent in the first quarter ending on Sept 30.
The sources said the Oil and Gas Regulatory Authority had even proposed to reduce the GST and PDL on petrol alone in a political move to encourage petrol consumption that would have reduced the gap between CNG and petrol prices with an overall impact of a couple of billions rupees on revenue collection. This was, however, rejected by the finance ministry, which wanted higher revenue collection by increasing CNG prices without affecting collection on petrol.
The issue, the sources said, had become so complicated for the ministries concerned that they were reluctant to take a decision, fearing that a decision in haste could lead to a sugar price-like crisis where market forces manipulated the situation to their advantage.
The government had signed a sugar price deal at Rs45 per kg with the industry, but when the apex court intervened to reduce these prices, the manipulators handled the situation in a manner that the commodity was no more available at less than Rs55 per kg.
The sources said the relevant ministries wanted the oil pricing formula to be taken up with the prime minister so that a collective decision could be made by the federal cabinet.
It was in this background that the ministries of petroleum and finance would seek more time from the apex court on Thursday for oil pricing revision. The court would be informed that the prices of petroleum products would be reduced by Rs2-3 per litre with effect from Friday because of decline in the international market.
The major problem is that the government has been finding it difficult to offset more than Rs21 billion losses reportedly faced by the refining industry over the past three months because of furnace oil and at the same time provide relief to the consumers, as desired by the Supreme Court.
The sources said the refineries produced about 34-40 per cent of furnace oil from crude refining. Since furnace oil is considered a low value-added product, its prices remain less than crude oil.
The refineries usually earn their profits through difference between crude oil and diesel, which stood in excess of $15-18 per barrel over the past decade under a faulty formula introduced by the then government.
Now that the difference between crude oil and diesel has come down to $3 per barrel, the refineries have reported losses to the tune of Rs21 billion in the past three months.
The refineries have informed the committee of experts that they could not sustain their operations beyond January and hence whatever formula the government planned to put in place should ensure that their losses were recovered and future operations became commercially viable.
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