Petroleum products: To cover FBR’s target, additional GST likely

Amid declining global prices, govt to increase rate up to 19% .

ISLAMABAD:

In a development that would irk the common man, the government is likely to increase the general sales tax (GST) on all petroleum products from the existing 17% up to 19%, denying consumers the full benefits of the plunge in global oil prices.

The move is aimed at covering the shortfall in tax revenues collected by the Federal Board of Revenue (FBR).

The mini-budget proposal to increase the GST on five petroleum products was discussed during a meeting held at the Ministry of Finance, said sources. The move would withhold benefits of up to Rs35 billion due to the reduction in oil prices and put it in the FBR’s kitty to cover the shortfall in tax revenues, said the sources.

The Parliament approved the Rs2.810-trillion tax target, which the FBR told the government could not be achieved without additional measures. Till December 29, the FBR has collected roughly Rs1.1 trillion and needs to raise Rs100 billion in the two remaining days in the year to hit the International Monetary Fund (IMF) target of Rs1.195 trillion for end December — which is next to impossible.



As much as 40% of the total sales tax is collected on account of petroleum products, which is a substantially high ratio. In the last financial year, the FBR collected Rs401 billion as tax on petroleum products.

The new petroleum prices for January will be announced after either increasing the sales tax rate or imposing a new levy on petroleum products, said sources. They added Prime Minister Nawaz Sharif will take a final decision as the Finance Ministry has prepared a summary in this regard.

After denying benefits of reduced oil prices to electricity consumers, it will be the second such attempt where the government will fleece the consumers. Earlier, the government increased electricity tariffs by 7.9% or 90 paisa per unit through equalisation surcharges in power bills.



The sources said one of the other proposals was to slap a 5% federal excise duty on all kinds of petroleum products. However, this proposal is meeting resistance from the Ministry of Petroleum and Natural Resources, which argued that it will have adverse implications on oil refineries.

The Ministry of Law and Justice would now vet these proposals before the end of the month. The FBR has informed the Finance Minister that sales tax rate on petroleum products can be increased through a notification and there was no need to introduce fresh legislation. The FBR is citing section 3(2)(b) of the Sales Tax Act of 1990 that empowers it to change sales tax rates.

According to a presentation given to the finance minister by FBR on Monday, the economy has so far benefited to the tune of Rs425 billion due to reduction in oil prices.

Official version

Meanwhile, a handout issued by the finance ministry said that FBR chairman said the government has incurred a loss of Rs70 billion owing to the reduction in oil prices.

“The FBR chairman, in his briefing, told the Minister that the government has incurred a revenue loss of Rs70 billion.

“The FBR has been preparing a summary to be presented to the Prime Minister on the start of the New year, stating what further benefit could be passed on to the consumer while creating little fiscal space for the federal government to carry on with its funding for other PSDP programmes,” the official handout stated while giving a veiled reference to new tax measures.

The Finance Minister said, “It does not mean that we will overcharge the consumer; the benefit of the people of this country will still be our first priority but, along with the consumer, we are only trying to partially recoup the losses in revenue so far incurred,” according to the handout.

Dar hoped the new measure will not disappoint the people.

Published in The Express Tribune, December 30^th,  2014.

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