Taxes on imports fuel inflation

ISLAMABAD:

The government collected a whopping one-third of import taxes or Rs149 billion on imports of nine energy and edible oil products during the first two months of this fiscal year, indicating reasons behind constant rise in prices of petroleum products and an essential kitchen item.

The Federal Board of Revenue (FBR) data showed that the Rs149 billion revenues during July-August 2021 period were also 132% more than the collection during the same period of the last fiscal year. This shows the impact of increase in tax rates, higher commodity prices and higher imports.

The collection during July-August 2020 was Rs64 billion.

Prime Minister Imran Khan again approved to increase the petrol prices to Rs123 per litre - the highest-ever price charged in Pakistan. The government’s decision to increase customs duty rates on petroleum products have also significantly contributed to price determination.

During July-August period of the current fiscal year, the FBR collected Rs149 billion in taxes at the import stage on petrol, natural gas, crude oil (a new tax), high speed diesel, bituminous coal, RBD palm oil, olein palm, soya bean oil and furnace oil, according to FBR statistics.

One of the major differences was imposition of 17% sales tax on crude oil and increase in customs duty on import of petrol from 5% to 10% and changing tax rates on palm oil.

The Rs149 billion revenues were equal to almost 33% of the total taxes collected at the import stage in two months. It was also 17.5% of the total Rs850 billion in taxes that the FBR generated in July-August period.

The data compiled by the FBR relating to duties and taxes collected at the import stage highlights heavy indirect taxation that has started hurting the consumers badly. The taxes that are paid on their domestic sales are over and above this collection.

Due to increasing share of the import taxes, the share of the indirect taxes in overall tax collection has gone up to 70%, which is hurting the poor and middle income groups more than the rich class.

Pakistan’s imports are also poised to significantly increase due to various factors like expansion in economic activities and high food imports due to drop in their domestic production.

The central bank had projected $61 billion in imports in the current fiscal year but the commerce ministry has lately estimated a record $72 billion imports.

On the back of record imports, the current account deficit widened to $2.3 billion in July-August 2021, which was also equal to 100% of the annual deficit projection given in the Annual Plan 2021-22 by the Ministry of Planning and Development. This also reflects poorly on the government that cannot make realistic macroeconomic estimates.

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In July-August, the FBR collected Rs28.6 billion in taxes on import of petrol on account of customs duties, sales tax and other taxes. This was higher by 80% or Rs12.8 billion - and despite reduction in the quantity of petrol imports, according to the FBR numbers.

The customs duties collection on petrol import was Rs12.1 billion in two months -thanks to the government’s decision to double the customs duty rate to 10% in July this year.

The import of gas was the second biggest revenue spinner at the import stage. The FBR collected Rs25.6 billion in taxes on gas import - higher by 190% or Rs16.8 billion over the same period of the last year. The value of the LNG/gas import more than doubled to Rs106 billion.

The crude oil imports fetched overRs22 billion in taxes at the import stage alone up by 450% or nearly Rs18 billion after the government slapped 17% GST on crude oil imports in the budget. Out of Rs22 billion, the sales tax collection was Rs18.6 billion.

The Rs17.5 billion collection of taxes on import of high speed diesel was the fourth largest revenue spinner at the import stage - also higher by 101% or Rs8.8 billion.

These numbers suggest that the import taxes were one of the key reasons behind historically high petroleum products prices in Pakistan. The depreciation of the rupee against the US dollar was also adding fuel to the fire.

The higher prices of diesel were also causing inflation due to increase in transport fares and upsurge in agriculture produce cost in areas where the canal water is not available.

Bituminous coal import was the fifth highest revenue spinner at the import stage - bringing in Rs12.2 billion worth taxes that were higher by Rs7.4 billion or 154%.

Palm olein import generated Rs12.1 billion worth taxes in two months - up by 28%. Similarly, the RBD palm oil imports fetched another Rs10.4 billion - up 116%. The soya bean import oil import fetched Rs8.7 billion in taxes - up by 93%- in just two months.

Various cooking oil brands have increased their price to Rs330-360 per litre, which has affected every household.

The furnace oil import gave another Rs11.8 billion in two-month period - higher by Rs9 billion or 321%.

Published in The Express Tribune, September 19^th, 2021.

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