PTI govt has cut petrol taxes but Pakistanis still paying more because global prices went up

September 4, 2018

Twitter was treated to a little sibling rivalry on Sept. 1 when two brothers, Finance Minister Asad Umar and ex-Sindh Governor Mohammad Zubair, had an argument about petrol taxes.

Not only are they brothers in high positions, they are from bitter rivals: the PTI and PML-N.

So when they argued on Twitter it was more than just a family matter. It was about the government and opposition debating national policy that you and every other Pakistani worries about.

August 7: Zubair tweets that one of Asad Umar’s first acts as finance minister should be to cut taxes on petrol as he had demanded from the man who held the post before him, in February 2016. “Walk the talk!” Zubair said.

Sept 1: Asad Umar responds, tweeting the tax people will pay on a liter of petrol from Sept. 1 will be less than half of what they were paying in Feb. 2016 when the PML-N was in power. Umar has 5m followers, so his feel-good message was retweeted more than 3,500 times.

However, Zubair disagreed, saying, “There has been no reduction in taxes from petrol prices. That was the PTI’s demand when in opposition.”

The PTI and PML-N cyber armies went at it after these two top guns had exchanged tweets.

Is Asad Umar getting it right then? Are we paying less in tax on petrol now?

SAMAA Digital explains if taxes were cut or not. Let’s compare the taxes from the two time periods: for Feb. 1, 2016, when the PML-N was in government and Sept. 1, 2018 when the PTI is in charge. The PTI government just announced its first-ever news on petrol prices:

Feb 1, 2016 (PML-N govt.) Sept. 1, 2018 (PTI govt.)
Price without tax Rs46.67 Rs75.1
tax Rs24.58 Rs17.33
Price with tax Rs71.25 Rs92.83

Source: Oil and Gas Regulatory Authority

The percentage of tax has indeed gone down. You paid 52.6% as a tax on petrol in February 2016. This tax went down to 23.6% in September this year.

The problem is that the percentage may have come down, but you have to also see how many rupees this translated into.

It turns out that we are still paying Rs21.58 more on a liter of petrol than in February 2016—because even though the tax has been cut, international oil prices have gone up. The effect of cutting the tax is cancelled out by higher global prices. This means that we are payingRs7.25 less in taxes on a liter of petrol.

The government’s official announcement mentions taxes in rupees, not in percentages because of changing prices of crude oil.
For example, when local price was Rs46.67 per liter, oil was trading around $28 per barrel, but it rose to $70 this September, resulting in a local price of Rs75.1.

The PTI’s Asad Umar hinted he may decide on more cuts in the future. “[The] PML-N govt. had Rs300 billion as a petrol levy in the budget for this year. Wait for my strategy to be presented to parliament and you will see the difference,” the finance minister said.

The only downside is that if we pay less taxes on petrol the government earns less. Taxes on petrol products are a major source of revenue for the government after all.

If you happen to be an economy buff or want to dig into the PTI’s claims and want to read a deeper explanation on the breakdown, please read on:                                                                   

Feb 1, 2016 (PML-N govt.) Sept. 1, 2018 (PTI govt.)
Petrol price Rs46.67 Rs75.1
Petrol tax Rs10 Rs9.68
GST Rs14.58 Rs8.05
Total tax Rs24.58 Rs17.33
You pay at the pump Rs71.25 Rs92.83

Source: Oil and Gas Regulatory Authority

Some of this lower tax rate is a function of price increase. Consider this: The petrol levy in February 2016 was 21.4% of the day’s price, butit came down to 12.8% in September 2018 even though both governments charged close to Rs10. So in percentage terms, the present government seems to be charging much less, but consumers are paying the same amount in rupees. This means, in absolute terms, Rs7.25 is the relief consumers got on a liter of petrol (w.e.f. Sept 1).