Petrol levy rate may rise to Rs60 per litre

In a move that could further fuel inflation, the government is considering increasing the petroleum levy rates to a record Rs60 per litre on petroleum products. This increase is part of the government’s plan to generate approximately Rs2.9 trillion in non-tax revenues in the next financial year.

The proposal aims to create additional fiscal space for spending, as the government expects a 30% increase in expenditure on pension payments and the functioning of the civil government compared to the original budget for this year.

Sources have informed The Express Tribune that the Ministry of Finance has proposed raising the levy rate by an additional Rs10 per litre to collect around Rs870 billion from this source during the fiscal year 2023-24. The current rate stands at Rs50 per litre.

Despite the anticipation of a rise in crude oil prices to $100 per barrel by the end of the year due to Saudi Arabia’s production cuts of 100,000 barrels per day, the Ministry of Finance has put forth the proposal to increase the rates. The projected petroleum prices for the next fiscal year will remain high, with the central bank estimating an average exchange rate of Rs308 per dollar.

In the current fiscal year, the government had set a target of collecting Rs855 billion through the petroleum levy. However, during the first nine months of this fiscal year, the collection only reached Rs362 billion.

Another significant source of non-tax revenue is the profits of the State Bank of Pakistan (SBP). Sources reveal that the finance ministry now estimates the income under this category to be Rs1.1 trillion, compared to the earlier estimate of Rs920 billion.

Non-tax revenues are not shared with the provinces, and the federal government is increasingly relying on these sources to fund its expenditures. The government may also explore other sources, such as wealth tax and windfall levy on banks, to achieve the target of collecting Rs2.9 trillion in non-tax revenues for the next fiscal year, said the sources.

For the current fiscal year, the government aimed to generate Rs1.9 trillion in non-tax revenues.

The government faces challenges in finding innovative ways to increase tax collection, as internal politics hinder the implementation of recommendations from the Reform and Revenue Mobilisation Commission (RRMC). According to the RRMC report, implementing five measures could generate an additional Rs635 billion in revenues during the next fiscal year. One of the recommended measures is ending the final tax regime for exporters, which could generate Rs300 billion in annual revenues for the Federal Board of Revenue (FBR).

Currently, exporters are taxed under the Final Tax Regime and are exempt from FBR audits. The RRMC proposes bringing exporters under the normal tax regime by placing them under the Minimum Tax Regime.

The RRMC report also suggests that increasing the income tax rate for the non-corporate sector could generate an additional Rs150 billion in revenues.

Curbing expenditures remains a major challenge for the government. Pension expenditure is estimated to be Rs780 billion for the next fiscal year, an increase of Rs172 billion or 28% compared to this year’s original budget. Additionally, the cost of running the civil government is projected to be Rs720 billion, up by Rs167 billion or 30%.

Sources indicate that the budget deficit for fiscal year 2023-24, the gap between expenses and income, is estimated to be around 7.4% of the GDP, equivalent to approximately Rs7.8 trillion in rupees.

The government has made slight changes to its earlier projected budget figures. The overall primary budget might show a slight positive balance due to provincial cash surpluses. The overall budget deficit could be around 6.8% of the GDP or approximately Rs7.2 trillion.

Published in The Express Tribune, June 7^th, 2023.

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