Petroleum Pricing Some Respite


The respite in global crude oil price finally offered a breather to retail gasoline prices, without the government having to cut down on petroleum taxes. The reduction of Rs5/ltr (3 percent) for December’s last fortnight is the first in seven fortnights. A significant depreciation in rupee’s value against the greenback has taken some of the sheen away, as PKR depreciation alone has caused Rs4/ltr to Arab light refined petroleum price in a little over two months.

Recall that the Petroleum Levy (PL) has been restored as a prior action for the ongoing IMF program, with the authorities agreeing to increase PL gradually by Rs4/ltr every month. Luck is finally on the government’s side as the oil prices have come off from the peak of October 2021, allowing government to charge PL and gradually increase GST without having to increase the retail price.

It must be remembered that gasoline retail prices are still far away from the maximum allowed limit under current settings of standard GST at 17 percent and PL at Rs30/ltr. The GST currently stands at 4.8 percent for petrol and PL is Rs16.4/ltr shy of the maximum allowed limit. To put it in perspective, the authorities are letting go Rs30/ltr in lieu of taxes. Simply put, petrol retail price would be Rs171/ltr, had standard GST and maximum PL be in place.

What also goes in government’s favor is the fact that high prices have been tested without a dent in petroleum consumption. Although revised PL target is still a ridiculously high one, having tested recent highs gives government the room to levy higher taxes in coming months.

A key change in the latest petroleum price notification is that in the OMC and dealer margins, after the drama in the dying days of last month where petrol stations across the country were shut down for a brief while. Margins have collectively gone up by Rs1.7/ltr of 25 percent – the highest such increase ever offered to OMCs and dealers. This is the second time in 2021, and third time since the government took over that the margins have increased. What wouldn’t the government give for the oil prices to continue sliding.

Related posts