Myth vs Reality: Rs164b collected through tax on petroleum products

FBR report contradicts government’s claim of subsidised oil.

ISLAMABAD:

The poor and rich alike have paid Rs164 billion in taxes on petroleum products during the first half of the current financial year, contradicting the government’s claim of subsidising petroleum products, according to a latest official report.

The government collected Rs128.3 billion on account of sales tax, customs duty and federal excise duty during July through December 2010, states the second quarter review of the Federal Board of Revenue (FBR).

The collection under these heads comes to almost one-fifth of total taxes collected by FBR during this period. Additionally, the Rs128 billion collected exceeds the collection in the corresponding period of the preceding year by Rs18 billion.

An amount of Rs35.5 billion was collected on account of petroleum levy, taking the total collection on petroleum products to Rs163.8 billion, nearly one per cent of the total size of economy.

The collection on account of sales tax, customs duty and federal excise duty has become part of the federal divisible pool and 56 per cent of the pool goes to the provinces under the seventh National Finance Commission Award. The petroleum levy is out of the divisible pool and is therefore not being collected by FBR.

The government is claiming that it has so far paid Rs21 billion in subsidies after freezing the petroleum product prices from December through February, a claim not supported by statistics.

The FBR report states that the authorities collected Rs118.2 billion on account of 17 per cent sales tax. Out of that, Rs54.9 billion was collected at the import stage and Rs63.3 billion on domestic sales. On top of these, Rs7.8 billion custom duties and Rs2.3 billion excise duties were collected during the period.

In the six months, FBR collected Rs661.6 billion in taxes, out of which Rs241 billion was on account of direct taxes, which came to 36.5 per cent of total collection. Almost 60 per cent of direct taxes came through withholding tax, which is actually not a direct mode of taxation. Major sources of withholding tax were contracts, imports, salaries, telephone and electricity bills, exports, bank interest and cash withdrawal from banks.

FBR collected Rs151.4 billion in withholding tax during the first half, out of which Rs38 billion was generated through deduction of three per cent of the contract value. The amount is almost 10 per cent less than last year due to a substantial cut in public sector development budget.

FBR collected Rs28.8 billion on imports and Rs19.8 billion through salaries. Besides, Rs13 billion was collected through telephone bills and Rs7 billion through electricity bills, irrespective of poor and rich consumers. Additionally, FBR collected Rs6.8 billion on account of tax on cash withdrawal from banks, almost nine per cent more than the collection in the corresponding period last year.

Published in The Express Tribune, April 1^st, 2011.