Karachi, December 06, 2021 (PPI-OT): PDL collection may likely tally similar to last year
What really turns out to be an exacting measure as Pakistan resumes program with the IMF, the monthly increase of Rs4/litre in petroleum levy collection from MS and HSD sales can likely enable collection of Rs405bn by end-Jun22; 5% lower than last year and 66% of the budget target of Rs610bn. While this move is inflationary in nature, some respite to enable higher collection has emerged after oil prices took a beating due to spread of new COVID-19 variant, Omicron. We estimate, for every US$10/bbl decline in oil price, Pakistan has a room to enable Rs15-17/litre hike in petroleum levy or sales tax collection on retail fuels.
The budget presented a colossal target of Rs610bn for Petroleum Levy which was 36% higher than previous years target and 51% higher than FY21 collection of Rs425bn. While this must have been possible considering oil prices remained abysmally low throughout the year instead of hitting 7-year highs. With Pakistan continuously pushing policy measures to close in on the resumption of the EFF program with IMF, an exacting measure of enhancing Petroleum Levy collection rate on both MS and HSD by Rs4/litre every month, albeit inflationary in nature, will enable adequate collection of non-tax revenue for FY22.
The virulent spread of Omicron triggered a flash crash in oil prices as well as various other commodities. Oil lost nearly 20% from its recent high, only recovering mildly after that, specially with the update on OPEC+ which stands poised to act if demand growth weakens on account of the new variant. OPEC+ is currently sticking to incrementally ease output restrictions, adding 400kbpd until production reaches pre-pandemic levels. We estimate every US$10/bbl loss in oil price opens up a room of about Rs15-17/litre in the ex-refinery price, thereby allowing the government to either enhance the rate of collection of Petroleum Levy or Sales Tax.
During 5MFY22, total POL product sales stood at 9.6mnMT, up 18% YoY where MS and HSD sales improved by 11% and 20% to 3.8mnMT and 3.75mnMT, respectively. Assuming a similar run rate, which accounts for a winter-ridden Nov’21, our projections of increasing levy on a monthly basis by Rs4/litre will peak the rate of collection in Apr-May’22 whilst enabling the government to be able to collect a total of Rs405bn for the year.