Mishandling the gas tax

The government seems to have gotten into the habit of doing the right thing with the wrong methods — the tax on gas consumption makes good policy sense: gas prices in Pakistan are artificially low and the government needs to raise revenue to improve the infrastructure and raise gas production. But where it went wrong is the stealth manner in which it is trying to impose this tax.

For starters, the tax was proposed not in the cabinet but the Senate finance committee. This represents a lack of trust by Prime Minister Yousaf Raza Gilani and Finance Minister Abdul Hafeez Shaikh in their own cabinet colleagues, a worrying prospect. Also, it was introduced in the Senate and not the National Assembly, which is where, constitutionally speaking, all bills related to money matters must originate.

The government may eventually correct its blundering approach, but by then the damage will already have been done. Opposition politicians and the media will smell a rat, even if there isn’t one. And once more, the conversation will turn to pointless name-calling rather than a substantive discussion of policy.

There is, however, one criticism we have of this policy and that is the highly inequitable manner in which the burden of the tax will be spread. Owners of vehicles that run on compressed natural gas will see their fuel prices increase by between 25 and 79 per cent, depending on where they live. The regional variation may make sense, but the government would do well to explain its reasons for this.

The more disturbing variation is the fact that industrial consumers — by definition the richest segment of our society — will see only a 3 per cent increase in their gas bills. There is no justification to jack up prices by over a quarter for most of the middle class and then only have one tenth of that increase for the industrialists. The burden must be shared more equitably.

Published in The Express Tribune, November 10^th, 2011.