ZAHEER ABBASI &

SOHAIL SARFRAZ

ISLAMABAD: The caretakers’ decision to keep price of petroleum products unchanged by reducing sales tax will cost between Rs 5.5 to 6 billion each month. This was stated by former Finance Minister Dr Hafeez Pasha in an exclusive talk with Business Recorder on Wednesday.

Pasha added that the country cannot afford the luxury of this massive revenue loss when it is facing an $18 billion current account and an unsustainably high fiscal deficit estimated at a minimum of 7.5 percent of GDP. There is a need to protect revenue and reduce excessive imports which can only be done by applying a standard rate of 17 percent on petroleum products. The caretaker government’s decision to reduce sales tax on high spirit from 12 percent to 9.5 percent which is a major source of revenue after high speed diesel will have serious implications on revenue, he lamented.

Dr Pasha said that motor spirit and high speed diesel are 90 percent revenue spinners from petroleum products and any reduction in their sales tax rate means a revenue loss from a major source. The current rate of 9.5 percent is a historical low, he said suggesting that the caretakers must instead reduce sales tax on high speed diesel (HSD) to 17 percent from existing 22 percent and increase the sales tax on motor spirit to 17 percent from 9.5 percent to bring about uniformity in the rates.

Former Finance Minister Dr Salman Shah concurred and stated that the government would have to mobilize revenue from other sources to offset the impact of relief in sales tax provided on petroleum products to achieve the budgeted target of fiscal deficit.

He emphasized the need for reforming tax administration and tax structure with the objective of broadening the tax base and facilitating the tax payers’.

The simplification of tax procedure and filing of tax returns, broadening the tax base, and raising revenue from its current dismal level will be major challenges for the next government, Dr Shah stated. There is a need to improve the credibility of Federal Board of Revenue (FBR) otherwise tax collection will not increase, he added.

Dr Shah said that a number of countries rely heavily on tax collection from petroleum products such as Japan where tax on petroleum products are double compared to Pakistan, but they provide relief to the common man through other means.

He said that petroleum products are also used for power generation which in turn is an input for industry and any increase in tariffs implies higher input costs.