Perturbed by the declining oil prices in the international market, the federal government haspromptly increased five percent sales tax on petroleum products to offset the shortfall in revenue collections, ignoring the fact that the move will deprivethe consumers of a relief of nearly Rs5 billion.On the advice of the Finance Ministry,a notification has been issued,marking increase in general sales tax from 17 percent to 22 percent on high-speed diesel oil, light diesel oil, kerosene and HOBC with effect from Jan 1.The prices of crude oil have continuously been fallingsince June, amid slow demand of oil, but increased supply in the international markets. The oil producing countries are adjusting their budgets in accordance with low income generation while some economies are fully reaping the benefits of the falling oil prices and are fully active to resolve the issues of balance of payment and trade deficit.
It is probably for the first time in the history of modern economics that the prices of oil products have fallen by 30 percent in six months as oil is traded at the lowest level since May 2009 and traded at $58 per barrel from $110 in August. However, Finance Minister Ishaq Dar, instead of extending relief to consumers, allowed the increase in general sales tax, lending currency to the notion that the government has no regard for the common man’s plight. The oil import has become a source of income for the government than a consumer product and necessity and it earns up to Rs 35 billion under this head.
The finance ministry has already set an optimistic target of Rs 2,810 billion for the current fiscal year, which is 24 percent more than the previous year tax collections, but is facing a shortfall of nearly Rs 100 billion due to recent cut in oil prices. This is the point where disadvantages of the economy of loans are difficult to be concealed as the revenue collection target is synchronized with the IMF condition. The government earns at least 30 percent sales tax from petroleum products and overall dip in petroleum prices will definitely affect the revenue collections in the coming months. The point of concern is that what other options the government will have in case of further decline in petroleum prices and subsequent decrease in government revenues generated through the imposition of additional five percent general sales tax. There was a need to rationalize the imposition of 17 percent general sales tax by bring about corrections in the oil prices for domestic consumers, but the government probably wants to keep the option of criticism open from the opposition parties.
