ANOTHER HIKE IN PETROLEUM PRICES

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The government raised the price of petrol by Rs4 per liter and of high-speed diesel (HSD) by Rs2 per liter on Thursday. Meanwhile, kerosene oil and light diesel oil (LDO) prices have been raised by Rs7.05 and Rs8.82 per liter, respectively. Petrol costs Rs127.30 per liter, high-speed diesel costs Rs122.04 per liter, kerosene costs Rs99.31, and light diesel costs Rs99.51 per liter as of October 1.

The Finance Division stated in a press statement that the Oil & Gas Regulatory Authority (OGRA) has calculated higher petroleum prices based on an increase in international market prices as well as exchange rate fluctuations during the last two weeks. However, Prime Minister Imran Khan “went against the proposal and passed on the lowest price increase to consumers,” he added.

According to the notification, the government absorbed the increased international pricing pressure by lowering the petroleum charge and the sales tax.

“Petroleum costs in Pakistan are the lowest in the area,” he went on to say.

Minister of State for Information Farrukh Habib Tarin said at a press conference in Islamabad: “Only 16 other countries have cheaper gasoline costs than the United States. They are an oil producer with their oil.”

However, no amount of words can calm people’s rage. The opposition and the general public are all denouncing the Prime Minister for taking this step.

As PPP Chairman Bilawal Bhutto Zardari unleashed a withering attack on the government, he also condemned the hike in petroleum product prices.

“People are burning in the fire of unprecedented inflation, and any further increase in gasoline prices would only fan the flames.”

“After wrecking the economy, taxes on petroleum products remain an essential source of revenue for the PTI government,” he remarked.

Why is the price of petrol in Pakistan Rs127.30 a liter? According to the facts and figures, the global average price of gasoline is 1.20 US dollars per liter, which is equivalent to 204.90 Pakistani rupees.

Now, how are petrol prices even calculated?

The price of fuel includes all taxes and fees. Gasoline has a set price per liter. Add to that the Petroleum Development Levy (PDL), a federal government levy. Following the PDL, other additions include the oil marketing company’s profit of Rs2-3 per liter, the dealer’s profit (who sells at the petrol pumps), which is estimated to be Rs2-2.5, a 1% import tax, a variable transportation charge, and finally the General Sales Tax (GST).

To make up for the revenue gap, governments would raise the GST. However, the GST has just been reduced from 11.76 Rs per gallon to 8.15 Rs.

In the previous year, the federal government has raised gasoline prices almost every month, making life difficult for commuters. But there was a good reason for it. Global oil prices have begun to plummet in the last year, owing mostly to the coronavirus outbreak. Increased travel restrictions have resulted in lower oil demand. Concerns about climate change and a desire to examine renewable energy possibilities are among factors driving down oil prices, according to media reports.

Petroleum Levy (PL) or Petroleum Development Levy (PDL) is a type of tax imposed by the GOP in general or the Ministry of Energy in particular, which becomes part of the pricing structure, and the scope of the accumulating levy permits all infrastructural development taking place in the oil industry by government authorities. It can be altered at any time and is a clever technique to manipulate the pricing formula. Despite the dramatic increase in gasoline prices, the petroleum levy remains at 5.62 per liter.

After learning all of these facts, I believe the government should admit that it can no longer meet its revenue objective from petroleum products and, in exchange, give a clear and credible strategy for increasing revenue from other sources. So far, it has not been successful, and finding choices to cover such a vast hole in such a short period is a difficult assignment. The final alternative is to wait and hope that the international price falls, in which case it may be able to recoup its losses by reintroducing taxes while keeping local pricing constant. If this occurs, this option may turn out to be rather prudent.

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