Govt expected to hike petroleum levy to meet revenue targets

WEB DESK: In pursuit of the revenue goals set by the International Monetary Fund (IMF), the government is expected to increase the Petroleum Development Levy (PDL) charge for high-speed diesel (HSD) to Rs60 per litre. This move aims to achieve a targeted revenue of Rs869 billion.

The insights were unveiled in a report by JS Global on Friday. The report highlighted concerns regarding the decline in petroleum, oil, and lubricants (POL) sales, which pose challenges in meeting the established PDL collection targets, a collaborative effort with the IMF.

POL sales in Pakistan plummeted to 1.06 million tonnes in September 2023, marking a significant 31 per cent decrease YoY and a 25 per cent decline MoM, reaching the lowest level since the COVID-19 lockdown in March 2020.

Experts attributed this decline to soaring prices, smuggling of oil from Iran, and reduced furnace oil (FO)-based power generation. Specifically, ex-furnace oil (FO) sales stood at 0.97 million tonnes in September 2023, reflecting a 20 per cent YoY drop and a 24 per cent MoM decrease.

The first quarter of FY24 witnessed a 15 per cent YoY fall in oil sales, amounting to 3.8 million tonnes, with EX-FO sales dropping by 1 per cent YoY to 3.5 million tonnes.

JS Global’s report projected a potential shortfall of approximately Rs81 billion in achieving the FY24 PDL collection target of Rs869 billion due to a 20 per cent YoY decline in sales volumes.

This shortfall is attributed to reduced Oil Marketing Company (OMC) sales and the government’s hesitation to increase PDL charges on HSD.

To boost revenue collection, the government had earlier imposed PDL on Motor Spirit (MS) and HSD in the previous fiscal year.

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According to Business Recorder, the PDL charges had been raised to Rs50 per litre for both MS (in November 2022) and HSD (by April 2023), contributing to improved PDL collection despite low sales volumes throughout the year.

Subsequently, the PDL on MS was further raised to Rs55 per litre in July and eventually reached Rs60 per litre by September 2023.

JS Global concluded that there is a likelihood that the government will consider a similar hike in the PDL charge for HSD to Rs60 per litre in the near future.

Additionally, pressures on tax collection might lead to the imposition of Goods and Services Tax (GST) charges on these products, currently at a zero rate.

However, higher retail prices could further dampen POL product volumes, exacerbating the challenge faced by the government.