The oil price imbroglio

The National Assembly should debate and find a way out of the current imbroglio on oil pricing. This requires a critical review of the skewed tax regime.

In the first week of July, fuel prices were raised, cut and raised again. The price of petrol has now been fixed at Rs62.13 a litre, the same as it was after imposition of carbon tax on July1.

Instead of capitalising on the public goodwill to kick-start the sagging economy, the elected government seems to be doing all in its means to loose its most valuable asset — the public support — by accepting what it calls, ‘politically difficult decisions’ to appease foreign lenders.

The imposition of carbon tax in place of petroleum development levy by the Gilani government from July 1, its termination on the order of the Supreme Court on July seven and restoration of petroleum development levy the next day on July eight through a presidential ordinance were extraordinary measures with a direct impact on the wellbeing of the people.

The carbon tax that was projected to raise Rs122 billion this fiscal year for the government hiked the prices of petroleum products by 7-15 per cent when poverty and unemployment are on the rise.

The increase in the transport charges pushed up the cost of production, in some cases by as much as 10 per cent, and energised the price spiral. Post-July 1, market reported increase in price of many consumer and producer items such as edibles and cement.

There was resentment in the public over the government decision. The decision of the Supreme Court pleasantly surprised the public as prices of petroleum products fell back to June 30 level. The Presidential Ordinance ‘restored’ petroleum development levy with an increase equivalent to the raise announced under the garb of carbon tax.

Dr Asim Hussain, advisor to prime minister on petroleum, defended the position of the government. ‘The government needed revenue from petroleum products to cut the Rs722 billion budget deficit.’

‘The government is bogged down with pricing of wheat, sugar cane, power, gas, oil products for the better part. Let the market determine the prices of products and services and the government should focus on improving the fundamentals to create the right economic environment for growth and development,’ a member of the government research team said on the condition of anonymity.

The biggest opposition party — PML(N) — tried to champion the cause of the downtrodden by opposing the carbon tax but for this, it chose the apex court instead of the parliament.

‘They (PML N) sat through the prolonged marathon budget sessions of the assembly and voted for passing the budget with carbon tax. Coming out of the assembly they headed for the court. What is this? Delayed reaction or hypocrisy? Why did they not tear it (carbon tax) down on the floor of the assembly in the full public view? Which democrat would push the Supreme Court to overrule the decision of the parliament?,’ asked a seasoned analyst from Islamabad.

Even if we cut the dramatics out, it would be wise not to drag the Supreme Court on issues that can well be debated and resolved in the assembly. The solution should be acceptable for donors but must not be against the wishes of deprived people.

‘If this is the beginning of another round of animosity between the two key institutions— the executive and the judiciary, only time would tell. This, however, would not fare too well for the country faced with turmoil and recession,’ commented a worried businessman.

A country’s health dependent on net foreign inflows for growth, cannot, perhaps, afford to be indifferent to its balance sheet. It needs to project itself as financially responsible to achieve credit-worthiness to be able to get the support it desperately needs from development partners.

But why should the burden of narrowing fiscal and current account deficit be borne by ordinary citizens in an inequitable society? Indirect taxes on essential commodities such as oil disproportionately burden the poor. It would be apt for the government to focus on enlarging the tax net and making tax administration efficient and corruption-free.

To show a presentable current account position, it may take drastic measures to cut wasteful spending. There is a huge room to reduce the size of government without compromising its capacity to govern. There are scores of departments that have become redundant.

By publicising and honouring members of assemblies who pay most in taxes, examples could be set for others to follow. What FBR has not been able to achieve by hounding high net worth individuals could perhaps be achieved by setting examples.

‘Instead of squeesing more revenues out of a sliding economy through taxation, would it not be better if the government trims its non-development expenditure, drop orders for new cars for ministers’ chief ministers’ MNAs’ and MPAs,’ cut on lavish parties and extended dinners, stop travelling in company of friends and relatives around the world?

It is the typical behaviour of the private sector to internalise gains and externalise pains. The government is expected to reconcile the competing interests in a society that also suit the interests of the majority. It is also supposed to be a custodian of public interest. It is supposed to keep self-serving interests and socially costly practices in check by laying down rules and regulations that promote social justice.

It is inappropriate, in the first place, to rename a tax to cover up the inefficiency of the government in mobilisation of internal resources.

This is not only the government, the attitude of the opposition is equally intriguing. The PML(N) legislators like other members of the National Assembly took little interest in the budget which was passed once the business of grant approval was completed without any meaningful debate.

It, however, opted to file a petition in the Supreme Court against the carbon tax on oil products instead of tearing it down in the assembly with the help of legislators.