Govt increases petrol tax to Rs161 per litre, sets new price at Rs458 per litre

High-speed diesel price increased by 55% to Rs520 per litre

The government on Thursday further increased petrol price by Rs137 per litre, or by 43%, to history’s highest ever level of Rs458.4 after Prime Minister Shehbaz Sharif decided to impose more taxes on consumers.

The Rs458.4 per litre new price of petrol is also far higher than the increase in the international market, as PM Shehbaz decided to increase the petroleum levy to a record Rs160.61 per litre on petrol. With one stroke of a pen, the premier increased the petroleum levy on petrol from Rs106 to Rs161 per litre — an increase of Rs55 in taxes.

His government also increased the high-speed diesel price to Pakistan’s highest level of Rs520.35 per litre — an increase of Rs185 per litre or 55%. But the prime minister abolished the petroleum levy on high-speed diesel and decided to retain Rs2.5 per litre carbon levy in addition to all import taxes.

The government increased the prices after it failed to convince the International Monetary Fund (IMF) to allow it to give more subsidies. The IMF capped the maximum subsidies on fuel at Rs152 billion.

The failure to convince the IMF also underscores that PM Shehbaz remained unable to leverage his relations with United States President Donald Trump in convincing the IMF to allow the country to absorb the price shock.

It is also the failure of the Finance Minister Muhammad Aurangzeb and his ministry, which could not convince the IMF and failed to meet the tax targets. Failure to meet tax targets consumed the additional fiscal space available in the budget.

However, the most shocking action of the government was to increase the petroleum levy rate to Rs161 per litre on petrol to raise additional funds for cross-subsidising the diesel prices. The government outsourced the state’s core function to protect its citizens to the petrol consumers.

It was the second major increase in the fuel prices in less than a month after PM Shehbaz increased the diesel and petrol prices by Rs55 per litre or 20%. The cumulative increase in the petrol price within a month stands at 63%, and that of the high-speed diesel at 75%.

Petroleum Minister Ali Pervaiz Malik and Aurangzeb announced the new rates in a pre-recorded video statement. The prime minister could not face the people, and unlike the last two occasions when he addressed the nation to tell them that he was not increasing the prices, this time he sent the two federal ministers to convey the message.

The petroleum minister said that in the past week, the petrol prices further increased by 6.5% to $136.4, and high-speed diesel by 20% to $285 in the international market. He announced the prices a day before the regular increase to avoid hoarding and running to the petrol stations.

The Express Tribune reported today that the government assured the IMF that it stood ready to increase the fuel prices. It was one of the poorest negotiated staff-level agreements, where the government pretended before the IMF that everything was normal with the economy despite the worst-ever fuel crisis since 1973.

The political and bureaucratic failures will now hurt every household at a time when poverty in Pakistan is at 11 years’ highest level, income inequality at 27 years highest level and unemployment at 21 years’ highest level.

Regional tensions escalated sharply after the US and Israeli attacks on Iran, killing thousands. Iran, in retaliation, has closed the Strait of Hormuz.

Kerosene oil price has been increased by Rs34 per litre to Rs468, while light diesel oil price has been increased by Rs30 to Rs395 per litre.

The global oil prices have increased massively amid the closure of some major oil and gas fields due to Iran’s decision to hurt American interests in the region and close the Strait of Hormuz.

In June last year, the IMF had asked Pakistan to set aside about Rs390 billion for contingency needs. The money was set aside for unforeseen events such as war and natural disasters, which the government did not use and instead put more burden on the users of petrol and high-speed diesel.

The government did provide Rs129 billion subsidy during the past three weeks by deducting the salaries of employees and slashing the Public Sector Development Programme.

The cost of the war will be paid by the ordinary consumers, as the government functionaries and the bureaucrats get a free transport facility. Despite so-called austerity measures, the federal government has recently bought new cars for its top bureaucrats.

PM Shehbaz had announced austerity measures, but his cabinet ministers did not change their travelling patterns. The ministers’ vehicles are still escorted by additional security vehicles even in the red zone, which is supposedly the most protected area of Pakistan.

These ministers go to the Prime Minister’s House from their offices with their full escorts.

The Federal Bureau of Revenue’s administration is also using heavy-duty cars in breach of the transportation policy and the Punjab government recently bent the policy for its top provincial bureaucrats.