Declining prices

Petrol, CNG consumers were provided with much-needed and much-deserved relief as prices were slashed across the board

Petrol and CNG consumers were provided with some much-needed and much-deserved relief as prices were slashed across the board, with the government deciding to follow the oil regulator’s recommendation. Pakistanis have not been able to reap the entire benefit of falling oil prices that have come down from around $110 to a little over $30 a barrel. This is partly due to the government looking to bridge its budget deficit by keeping some of the benefit for its book, and compensating for declining revenues of its oil-based companies. However, the main reason for its tight fist when it comes to declining oil prices has more to do with the country’s low tax base that sometimes forces it to charge higher rates it knows the public will have to pay. This, it hopes, will compensate for people’s general stubbornness to contribute to the national kitty in the form of taxes.

However, the lifting of sanctions on Iran and a deadlock over controlling oil production have led analysts to believe that the depressed price of crude oil is here to stay for the foreseeable future. Last month, the Pakistani government had decided to charge an absolute amount of tax on petroleum products — Rs29.53 a litre in the case of high-speed diesel that translates into over 60 per cent tax — meaning that no matter at what level, the price of oil is in the international market, the government’s GST revenues are unlikely to take a hit. In a fiscal policy statement, it has already been revealed that the government’s tax revenue collection has gone up. So where is the increased collection being utilised? The government has already decided to keep development spending subdued and all provinces as well as the centre have shown a surplus budget in the first six months of the ongoing fiscal year. The ‘extra’ money, despite the persistently narrow tax base, is supposedly only meant to bridge the budget deficit. The short-term strategy won’t work and the PML-N knows it. It is just not looking beyond its five-year term. The time to invest in infrastructure — beyond Punjab — is now.

Published in The Express Tribune, March 2^nd, 2016.

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