KARACHI: The Federal Board of Revenue (FBR) is likely to face Rs42 billion losses owing to cut in sales tax collection from petroleum products in the first half of the current fiscal year, officials said on Tuesday.
The FBR estimated the loss due to reduced rate of sales tax on petroleum products.
The government decided to keep the prices of petroleum products lower than the international prices in domestic market by cutting sales tax. “The government is continuously reducing rate of sales tax in order to absorb the impact of higher prices of POL (petroleum, oil and lubricants) products,” an official at FBR said.
The official said the FBR has already incurred Rs17 billion in revenue losses due to reduced sales tax rates on POL products during the first quarter (July – September) of 2018. The government recently further slashed the sales tax rates on POL products in order to maintain prices in October.
“If this trend continues then the tax loss may reach to Rs25 billion during second quarter of the current fiscal year,” the official added.
The previous government adopted a mechanism of higher sales tax rates to generate revenue as the international oil prices came down to the lowest level in January 2016 to reach at $28.36/barrel. Oil prices have bounced back to reach at $83/barrel in the international market.
Rupee depreciation, on the other hand, also increased the cost of oil products in the local market. The local currency has lost around 26 percent of its value against the US dollar since December 2017. Sales tax on petroleum products dropped to 4.5 percent in September from 17 percent in the same month a year earlier. Similarly, sales tax rate on high speed diesel was reduced to 17.5 percent from 31 percent in the last year.
The FBR officials said sales tax on import of POL products and domestic supplies is the major source of revenue. “Any reduction under this head would impact the annual revenue collection,” an official said.
Sales tax collection on both import and domestic supplies during the fiscal year of 2017/18 amounted to Rs547 billion compared to Rs438 billion during the preceding fiscal year.
The FBR collected Rs283 billion in sales tax on domestic supplies and Rs264 billion on imports during the last fiscal year compared with Rs226 billion and Rs212 billion, respectively in the preceding fiscal year.
