Govt plans to raise petroleum tax to Rs.60 per liter without approval from parliament. In a bid to generate significant non-tax revenues in the upcoming fiscal year, the government is contemplating a historic rise in petroleum levy rates, potentially reaching Rs60 per litre for petroleum products. The move, however, could further exacerbate inflationary pressures in the country.
The proposal aims to create additional fiscal space to accommodate increased expenditure on pension payments and the functioning of the civil government, with an expected 30% surge compared to the original budget for the current year.
Insiders have disclosed that the Ministry of Finance has recommended a hike of Rs10 per liter in the levy rate, with the goal of collecting approximately Rs870 billion from this source during the fiscal year 2023-24. Presently, the rate stands at Rs50 per liter.
Despite predictions of crude oil prices soaring to $100 per barrel by year-end, attributed to Saudi Arabia’s production cuts of 100,000 barrels per day, the Ministry of Finance has put forth a proposal for increased rates. The projected petroleum prices for the upcoming fiscal year will remain high, with the central bank estimating an average exchange rate of Rs308 per dollar.
Non-tax revenues are not shared with the provinces, and to finance its expenditures, the federal government is increasingly relying on these sources. To achieve the target of collecting Rs2.9 trillion in non-tax revenues for the next fiscal year, the government may also explore other sources, such as a wealth tax and a windfall levy on banks, according to insider sources.
In the current fiscal year, the government aimed to generate Rs1.9 trillion in non-tax revenues.
The government faces challenges in devising innovative strategies to enhance tax collection, as internal politics impede the implementation of recommendations from the Reform and Revenue Mobilisation Commission (RRMC). The RRMC report suggests that implementing five measures could generate an additional Rs 635 billion in revenues during the next fiscal year. One of the recommended measures involves ending the final tax regime for exporters, potentially yielding Rs300 billion in annual revenues for the Federal Board of Revenue (FBR).
Currently, exporters are subject to the Final Tax Regime and are exempt from FBR audits. The RRMC proposes placing exporters under the Minimum Tax Regime, thus subjecting them to the normal tax regime.
The RRMC report further recommends an increase in the income tax rate for the non-corporate sector, potentially generating an additional Rs150 billion in revenues.
Insiders suggest that the budget deficit for the fiscal year 2023-24, denotes the gap between expenses and income. Is estimated to be approximately 7.4% of the GDP, equivalent to around Rs 7.8 trillion.
Govt plans to raise petroleum tax have made slight adjustments to its earlier projected budget figures. The overall primary budget might display a slightly positive balance due to provincial cash surpluses, while the overall budget deficit could amount to around 6.8%. Already, there is a price hike in Pakistan from the last year when the government changed in April. Bad economy and political instability leading the country towards a deep dig.
