Revenue shortfall to be met through petroleum levy

ISLAMABAD: The government has decided to increase its reliance on the petroleum levy to fetch additional Rs194 billion revenue in the upcoming budget 2020-21, The News has learnt.

The overall collection of petroleum levy is expected to go up to Rs489 billion in next fiscal year against revised estimates of Rs295 billion in outgoing fiscal year so additional revenues of Rs194 billion will become part of the national exchequer when the government finds it really hard to generate traditional taxes collected through the FBR.

This conservative estimate of additional revenue of Rs194 billion will help the center substantially because this non-tax revenue does not become part of the Federal Divisible Pool (FDP) so its collected amount will not be distributed among the provinces under National Finance Commission (NFC) mechanism.

The petroleum levy will be kept on maximum higher side of Rs30 per liter for the whole financial year in 2020-21 and Ministry of Finance has calculated that it could generate Rs489 billion with help of petroleum surcharge in the next financial year.

Earlier, the government had estimated to generate Rs295 billion through the petroleum levy in outgoing fiscal year but the revised estimates suggest that it might generate only Rs250 billion till June 30, 2020. So this additional might go up anywhere between Rs 194 billion to Rs239 billion.

“At a time when POL prices have touched the lowest ebb on the international market and the FBR’s revenues face a major hit, the government decided to increase its reliance on the petroleum levy in the next budget,” said one top official dealing with the budget making exercise.

He said the General Sales Tax (GST) on petroleum products would be kept at 17 percent and no change would be brought in its collection mechanism. The decision for keeping petroleum on higher side has been taken at a time when the economic managers that other avenues of non-tax revenue might not yield positive results for them in coming fiscal year.

The POL prices were already on lower side and it was the projection of all IFIs that the POL prices in international market would remain on lower side keeping in view depressed demand.

The FBR’s Collection Target: The IMF has agreed to slash down the FBR’s tax collection envisaged at Rs5.105 trillion to Rs4.95 trillion for the next budget, as it was the wish of the incumbent regime to convince the Fund for slashing down the FBR target to Rs4.7 trillion.

The IMF estimates suggested that the FBR could easily generate the desired revenue target if economic activities restored after managing of Coronavirus so there would be no problem for the Fund for increasing incentives for any sector provided such measures did not create distortion into the economy.

The FBR will have to require 28 percent growth in tax revenue for materializing its desired tax collection target of Rs 4.95 trillion in next fiscal year against revised estimates of Rs 3908 billion for outgoing fiscal year ending on June 30, 2020.

When contacted, former finance minister and renowned economist Dr Hafeez A Pasha on Sunday, he said there were two major revenue spinners including imports and industrial production and both were nosedived by 21 percent and 30 percent respectively.

When the FBR’s tax revenue decreased substantially in post COVID-19 pandemic then how the tax revenue will go up by 28 percent from next fiscal year.

“With the prevalence of COVID-19 uncertainty the FBR can generate Rs4.3 trillion maximum,” he added.

He said the FBR’s tax collection never crossed 21 percent growth and it happened only in 2015-16 when the GST rate was hiked to 51 percent on POL products.

He said Pakistan’s GDP growth shrank by 9 percent in last quarter of the outgoing fiscal year so how the FBR will be able to generate tax growth by 29 to 30 percent. He asked as to how negotiations were done with the IMF staff, as they don’t understand how tax revenues would be raised when the economy was in a shambles.