Why government is not cutting petrol, diesel prices

On the eve of the New Year, the government reduced the price of petrol to Rs90.97 per litre. This might have come as good news for consumers who wanted to begin 2019 on a high but a deeper look into the numbers show that we are paying more in petrol tax today than what the finance minister criticised when he was in the opposition. 

Let’s break it down in chronological order.

You were paying Rs 24.58 in taxes on a litre of petrol in February 2016. Finance Minister Asad Umar, then a member of the opposition, criticised the government for charging consumers too much tax, saying the incidence of tax in prices was 52.6% given the price without tax was Rs46.67.

Fast forward to January 1, 2019, when the Oil and Gas Regulatory Authority recommended a cut of Rs9.5, but the finance ministry approved a reduction of just Rs4.86 per litre. This means you are now paying Rs27.22 on a litre of petrol, which is Rs2.64 higher than what Umar once criticised.

Though in percentage terms, the incumbent government is still charging less, 42.7% to be precise, Umar’s decision to cut prices by a margin smaller than what was recommended didn’t sit well with critics who took to social media to bash him.

Ogra’s recommendation was based on the international trend as crude oil prices have been on a decline since October 2017 and are currently trading at $53 a barrel, their lowest level in a year.

Umar had insisted he was referring to taxes as a percentage of petrol price, but his brother and former Sindh governor Mohammad Zubair countered him by saying that people were always concerned about how much they were paying on a litre of petrol, not the tax.

One may wonder why Umar didn’t approve the reduction Ogra recommended. The simplest answer to this would be he is not in the opposition anymore. This government is choked on finances and needs to increase its revenue to reduce annual losses, which stand at Rs2 trillion.

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