On Thursday January 26, 2023, the Pak Rupee closed at Rs.255.43 against the US Dollar, a loss of Rs.24.54 in one day. This is unprecedented. At the time of writing of this blog, the Rupee has further slided in the interbank market by more than 3% and is continuing. This has happened due to the effort to bring the open market in unison with the interbank, a kind of merger of the two markets, a key demand for long of the International Monetary Fund (IMF).
As the government has given into this demand, there are clear signs that it is willing to give in even more. To meet budgetary shortfall, the Fund has demanded to increase the rate of levy on petroleum products, impose the General Sales Tax (GST) on them, which to date is not charged on such products.
The next price review of these products is due on February 1, 2023. Assuming that the government decides to increase petroleum levy as well as impose GST, what could be the per litre price of petroleum products in Pakistan?
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Petrol Price in Pakistan Today
To understand what can happen on February 1, 2023, we need to first understand the current rate of petroleum prices and levy in Pakistan.
Current Petroleum Prices in Pakistan
|Product||Old Price (Rs.)||New Price (Rs.)||Difference (Rs.)|
|High Speed Diesel (HSD)||227.80||227.80||0|
|Kerosene Oil (SKO)||171.83||171.83||0|
Current Petroleum Levy in Pakistan
|Product||PL (Rs.)||GST (Rs.)||IFEM (Rs.)||OMM (Rs.)||DC (Rs.)||PSOERA (Rs.)|
|High Speed Diesel||32.50||0||0.81||5||7||3.50|
Glossary of Terms
PL – Petroleum Levy or Petroleum Development Levy
GST – General Sales Tax
IFEM – Inland Freight Equalization Margin
OMM – Oil Marketing Margins
DC – Dealers’ Commission
PSOERA – Pakistan State Oil Exchange Rate Adjustment
As can be seen, the current per litre levy on petrol is Rs.50. Currently, the government isn’t charging GST on any petroleum product. If the government decides to increase the levy to Rs.51, it would be an increase of Rs.1. With this, the per litre price of petrol will become Rs.215.80. Now impose 17% GST on it and you’d have to pay Rs.252.48 (approximately) for a litre of petrol. However, if the levy is increased by Rs.5, the per litre cost will go up to Rs.257.16 (approximately). If levy increases by Rs.10, per litre of petrol will cost Rs.263 (approximately).
This is assuming that all else remains unchanged. For example, the cost of buying, importing and refining petroleum products remains constant. Which is unlikely as prices in OPEC are increasing consistently since January 6, 2023. Margins of oil marketing companies and dealers’ commission remain unchanged, etc.
Bad News For Farmers
“Rabi” crops, especially wheat, are typically harvested in March to May of each year. Along with petrol, the government can increase the per litre price of diesel as well.
Currently, the government is charging Rs.32.50 as levy on per litre of diesel. If it is increased along with the imposition of GST, it will be very bad news for farmers and Pakistanis in general. Agricultural machinery and water pumping tube wells are run on diesel. As the price of diesel goes up, so will the cost of wheat harvest. In turn, the per kilo price of this staple food will increase. A country already reeling from daily inflation can ill afford any further increase in food prices.
In short, no matter how you look at it, it doesn’t look very rosy from here onwards. Let us know what you make of the present state of affairs in Pakistan and propose solutions.
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