Significant jump in petroleum prices in the offing with expected sales tax imposition

Significant jump in petroleum prices in the offing with expected sales tax imposition

ISLAMABAD: A significant increase in petroleum prices in the offing as the government may impose sales tax at 17 per cent on the petroleum products.

Reportedly, the International Monetary Fund (IMF) is asking Pakistan to levy sales tax on petroleum products, as the existing sales tax rate is zero per cent.

Market sources said that in case IMF and local authorities agreed on imposing sales tax then the domestic prices of petroleum products would go up significantly.

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Media reports suggested, another increase is predicted since a cash-strapped country opted to implement sales tax on petroleum items as an additional measure.

The international lending agency is demanding the country to raise energy and gas tariffs, introduce a general sales tax (GST), and privatize some state-owned firms.

The country last Sunday January 29, 2023 announced massive increase in petroleum prices, which were announced ahead scheduled review on January 31, 2023. The decision to increase the prices was made after the Pakistan Rupee (PKR) crashed in two sessions falling to historic low.

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The prices of petrol and high speed diesel (HSD) have been increased by Rs35 per liter each and the rates of kerosene oil and light diesel oil (LDO) have been increased by Rs18 per liter each, according to an announcement by Finance Minister Ishaq Dar.

The finance minister said that the new prices have been implemented from 11:00 AM on January 29, 2023.

The new prices of petroleum products with effective from 11:00 AM January 29, 2023 are: petrol Rs249.80 per liter; high speed diesel Rs262.80 per liter; kerosene oil Rs189.83 per liter; and light speed diesel Rs187 per liter.

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Experts believed that the government had partially increased the prices and remaining raise would be seen in coming days.

“Petrol and Diesel price increased by Rs 35 per litre, in-line with expectations. This is only a partial increase as it does not incorporate recent exchange rate depreciation,” said Fahad Rauf, Head of Equity Research at Ismail Iqbal Securities.

He said that another increase in petroleum prices would be announced in mid of February.

In his previous analysis before the recent increase, Fahad Rauf estimated that the petrol rate may be increased by 44 per cent to PKR 309 per liter from PKR 215 per liter after considering current international prices and dollar/rupee, petroleum levy and sales tax imposition. Similarly, in the same scenario the rate of diesel may also go up by 50 per cent from PKR 228 to PKR 341.

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Rauf also calculates the prices of petroleum products with latest decline in rupee value. According to him, the petrol rate may go up by 23 per cent to PKR 264 per liter from existing PKR 215 considering current international prices and dollar/rupee, petroleum levy but without sales tax imposition. Similarly, rate of diesel may also go up in same scenario by 28 per cent to PKR 291 per liter from existing PKR 228.

The analyst has estimated the petroleum prices on the basis of exchange rate as of January 26, 2023 when rupee crashed to record low PKR 255.43 against dollar after posting a historic single day fall PKR Rs24.54. However, the rupee has further declined to make new historic low of PKR 262.60 to the dollar in interbank foreign exchange market on January 27, 2023.