The government is contemplating a hike in the petroleum levy rates to an all-time high of Rs60 per litre on petroleum products, potentially driving inflation. This proposal is part of the government’s efforts to amass an estimated Rs2.9 trillion in non-tax revenues in the upcoming financial year.
This move aims to generate an extra budget for spending, with the government forecasting a 30% rise in pension payments and civil government operations compared to this year’s original budget.
According to insiders, the Ministry of Finance is suggesting a Rs10 per litre increase in the levy rate, with hopes to gather around Rs870 billion from this source in the fiscal year 2023-24. The current levy rate stands at Rs50 per litre.
The proposal to elevate the rates is on the table despite the projection of crude oil prices surging to $100 per barrel by year’s end, primarily due to Saudi Arabia’s decision to cut production by 100,000 barrels per day. Expected petroleum prices for the forthcoming fiscal year remain high, with an estimated average exchange rate of Rs308 per dollar by the central bank.
The government had initially targeted Rs855 billion in petroleum levy collections this fiscal year. However, collections have only reached Rs362 billion in the first three quarters of the fiscal year.
The State Bank of Pakistan (SBP) profits are another considerable non-tax revenue source. Finance ministry insiders have adjusted the estimated income under this category to Rs1.1 trillion, compared to the initial Rs920 billion prediction.
Since non-tax revenues are not split with the provinces, the federal government has increasingly relied on these sources to finance its expenditures. The government might also investigate other avenues, such as a wealth tax and windfall levy on banks to gather Rs2.9 trillion in non-tax revenues next fiscal year.
The estimated budget deficit for the fiscal year 2023-24, representing the gap between income and expenses, is approximately 7.4% of the GDP, or roughly Rs 7.8 trillion. A slight positive balance might be observed in the primary budget due to provincial cash surpluses, reducing the budget deficit to about 6.8% of the GDP, or around Rs 7.2 trillion.
