The government endorsed Oil and Gas Regulatory Authority’s (Ogra) proposal to raise the price of petrol significantly – from 81.53 rupees per litre to 84.51 rupee per litre. All other products’ recommendations were not approved – high speed diesel would cost 95.83 rupees per litre instead of Ogra recommended 100.16 rupees per litre in contrast to the existing 89.91 rupees per litre, kerosene would cost 70.26 rupees per litre instead of the Ogra recommended 77.06 rupees per litre against January’s price of 64.32 rupees per litre and LDO price would be 64.30 per litre against Ogra’s recommended 70.09 rupees per litre as opposed to January’s price of 58.37 rupees per litre.
The Ogra-recommended prices are based on January taxes levied by the government on these products, taxes that are inordinately high and have been the subject of much criticism by the country’s productive sectors who lament their inability to compete internationally due to this inordinately heavy reliance on petroleum and products as a source of revenue – a reliance based simply on ease of collection without any economic justification for this reliance. However, during times when political considerations far outweigh economic considerations Pakistani administrations have resisted the urge to raise petroleum prices and have absorbed any rise in the international price of oil by adjusting the levied taxes downward. Given that elections are right round the corner one would not be remiss in arguing that political considerations played a major role in the government’s decision with respect to petroleum prices for February.
The question is how much would the government collect in revenue from raising the price of petrol as suggested by Ogra and absorbing some of the revenue loss by reducing taxes on other petroleum products? The Federal Board of Revenue has estimated that collections from petrol price hike would be to the tune of 30 billion rupees in February, with 28 days, as opposed to the previous 31-day months (January and December) where collections were closer to 40 billion rupees.
However, what is disturbing is that the incumbent government is facing a major challenge in keeping the budget deficit within sustainable levels and there is evidence to suggest that given the rise in current expenditure, a normal prelude to general elections, as well as the heavier than ever reliance on external borrowing from very expensive external commercial sources (which is raising the debt servicing component of current expenditure) the country’s deficit maybe close to 7.5 percent by end of the current fiscal year – or close to what it inherited in 2013. Thus any decline in the budgeted revenue would have serious implications on the budget deficit which, in turn, would undermine efforts of the next elected government, to implement homegrown remedies.
The delicate balance between keeping as close to the budgeted revenue as possible, an amount that has been overly unrealistic during the PML-N administration to start off with promoting mini-budgets, and at the same time, to ensure that the tax structure (including taxes levied on basic inputs for most manufacturing units particularly fuel) does not overburden the productive sectors, has been a battle that has been lost for the past four and a half years. One can only hope that the Abbasi administration focuses on raising output, and promoting exports by making our products more competitive internationally rather than raising revenue that it fritters away on economically unviable current expenditure.
