Govt doubles petrol tax in six months

On every Rs100, you are paying Rs55 in taxes
Jun 01, 2020
A policeman stands at check post in front of Awan-e-Saddr during a spell of rain in the federal capital. Photo: Online

The government has doubled the petrol tax to Rs30 per liter in six months as falling international oil prices gave it more room to cut prices and still raise tax revenue.

In January, the government was charging Rs15 in its petroleum levy and Rs17 in sales tax. As a result, you were paying Rs32 in taxes on a liter of petrol, which cost Rs116. However, the government started reducing petrol prices aggressively from March 1 after a global demand suppression sent international oil prices crashing.

Following another rate cut, the government brought petrol prices down to Rs74.52, but raised petrol tax at the same time. 

An Oil and Gas Regulatory Authority notification issued Sunday said you are now paying Rs41 on every liter of petrol, and that is more than half the amount, 55% to be precise, goes in taxes. 

The government cut local prices four times since March 1, resulting in an overall drop of Rs42 per liter since January. It was able to do so after international crude oil prices crashed. As more and more countries adopted social distancing and went into lockdown to contain the spread of coronavirus, all kinds of travel came to a grinding halt. This turned into a global demand suppression, which sent oil futures crashing.

For example, American crude (WTI), which was trading above $60 a barrel in January, fell in the negative zone in April. Oil producers were literally selling oil while also giving money to the buyers as they ran out of storage for new stocks or that in transit. Unlike other commodities, petrol prices are regulated by the government, which sets prices every month based on international oil prices. The calculations are done by the Oil and Gas Regulatory Authority, which then submits its recommendation to the cabinet for approval at the end of the month. Based on this recommendation, the government increases or decreases the price, or keeps it unchanged. Since the petrol you are buying today was imported weeks in advance (as crude oil), the increase or decrease in price corresponds to whether international oil prices rose or fell. 
The government charges sales tax on petrol at 17%, but it keeps changing the amount of the petroleum levy, which is its main tool to increase tax revenue from oil consumption or pass on any relief to the consumers. While prices were cut sharply, the government increased the petroleum levy.
To repeat what was mentioned above: total taxes (including sales tax) on a liter now accounts for 55% of the price. This is double the tax as a percentage of the price you were paying in January.
The government didn’t pass the full benefit of a drop in the international crude oil prices to consumers. This is because it is facing a revenue shortfall for the current fiscal year. It is expected the budget deficit will shoot to 10% of the country’s GDP for the fiscal year ending June 30, 2020.



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