Crippling fuel tax burden
As back-to-back fuel shocks under the country's daily pricing review mechanism continue to haunt the public, the burden on everyday citizens shows no signs of easing. The federal government raised petrol prices by a total of Rs29.95 per litre and high-speed diesel by Rs25.27 per litre over the course of the week ending September 12, pushing short-term inflation, measured by the Sensitive Price Indicator, up by 8.62% year-on-year.
While price movements are not completely in the government's control, about one-quarter of retail fuel prices comprises different taxes. Consequently, it is crucial to understand how much leeway the authorities actually have to lower prices, should they choose to provide relief. As things stand, critics argue that oil marketing companies are the ones generating substantial profits at these high rates while everyday citizens, squeezed by skyrocketing housing and rent costs, find even basic transportation increasingly unaffordable. A more viable solution would be for the government to cut taxes, the petroleum development levy in particular, and bring fuel prices down to a reasonable level, a move that would undoubtedly secure broad political consensus across the aisle.
Public anger is mounting. Jamaat-e-Islami has staged nationwide sit-ins in Karachi, Lahore, Peshawar and Quetta, demanding the withdrawal of the petroleum levy and a reduction of petrol prices to Rs225 per litre. The party has rightly termed the levy an "extortion tax" that burdens every citizen and every sector of the economy. Most economists agree that Pakistan must improve its tax system. But the government seems to have no intention of supporting this argument, and is even hesitant to address the indirect taxes problem. Successive governments have claimed to be addressing the problem, but only with 'noteworthy' material, choosing instead to keep pressure up.
On the other hand, it could focus on the fact that reducing fuel taxes and surcharges would immediately lower consumer prices, ease inflation and restore a measure of relief to a population already reeling from an economic crisis. Kicking the can down the road is no longer an option.