Karachi, July 5, 2023 – Analysts at JS Global on Wednesday suggested that Pakistan might increase petroleum prices by enhancing the petroleum levy and sales tax. Their analysis indicates that the Petroleum Development Levy (PDL) collection has fallen short of the target due to reduced sales of Oil Marketing Companies (OMCs) and the government’s reluctance to raise the PDL charge.
To enhance revenue collection, the government introduced PDL on Motor Spirit (MS – Petrol) and High-Speed Diesel (HSD) in the previous fiscal year. PDL charges were raised to Rs50/liter for both MS (in November 2022) and HSD (in April 2023), which helped improve PDL collection despite low volumes throughout the year.
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However, calculations reveal that the PDL collection for FY23 shows a shortfall of Rs240 billion compared to the target of Rs855 billion. Achieving the PDL target is an important aspect of the IMF’s policy actions.
In recent developments, the government has further increased the PDL on Petrol by Rs5/liter, bringing it to Rs55/liter. Analysts believe that there is a strong possibility of the government raising the PDL charge to Rs60/liter for both MS and HSD in the near future to meet the ambitious target of Rs869 billion set for FY24. Additionally, pressures on tax collection may lead to the imposition of a general sales tax charge on these products, which is currently at zero.
It is worth mentioning that the government raised the sales tax rate to 18 percent through the Finance (Supplementary) Act of 2023.
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The potential increase in petroleum prices through adjustments in the petroleum levy and sales tax reflects the government’s efforts to address revenue collection concerns. These measures aim to bridge the shortfall in PDL collection and meet fiscal targets. However, such price hikes may have an impact on consumers and various sectors of the economy, necessitating careful consideration and analysis of the potential consequences.
The government’s approach to balancing revenue generation and ensuring affordability for consumers will play a crucial role in shaping the future trajectory of petroleum prices in Pakistan.