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Petrol price down, but you’re paying 5% more in taxes

It's because the government has raised the petroleum levy

Reporting | - Posted: Mar 3, 2020 | Last Updated: 8 months ago
Posted: Mar 3, 2020 | Last Updated: 8 months ago
Petrol price down, but you’re paying 5% more in taxes

Photo: Online

The Pakistani government has cut petrol prices by Rs5 per litre for the month of March, but consumers are paying Rs4 or 5% more in taxes on every litre compared to the previous month.

In February, you were paying Rs116.6 (official rate) for a litre of petrol, including Rs32 in government taxes. This month, you are paying Rs111.6 per litre, including Rs36 in government taxes. This is because the government has raised the petroleum levy.

To understand how it works, you need to dig deeper into the price structure.

Unlike other commodities, petrol prices are regulated by the government, which set prices every month based on international oil prices. The calculations are done by the Oil and Gas Regulatory Authority, which then submits its recommendation to the cabinet for approval at the end of the month. Based on this recommendation, the government increases or decreases the price, or keeps it unchanged.

Since the petrol you are buying today was imported weeks in advance (as crude oil), the increase or decrease in price corresponds to whether international oil prices rose or fell. Take for example, Arab Light as a benchmark for the price of crude oil.

The price of Arab Light fell from $72.6 per barrel in the first week of January to $52 a barrel on February 28, which is why the government cut petrol prices in its latest review. Now you may be wondering about how the petrol price can decrease based on a $20 per barrel fall in crude oil prices. Well, it’s complicated because we don’t know the dates of import for the oil you are consuming. However, we can go by government figures to have an idea.

Based on Ogra’s calculations, a litre of petrol costs Rs9 less than its price the previous month. This means the government should have cut petrol price by as much, but that didn’t happen because the government increased the petroleum levy by Rs4.7. In other words, the government passed on more than 50% of the benefit of the price decrease to you and gave itself the remainder so it could reduce its budget deficit by raising revenue.

So in terms of absolute price, you are paying Rs5 less on every litre of petrol this month, but in terms of overall taxes, you are paying 5% more on a litre of petrol compared to last month.

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