COVID-19 lockdown: FBR loses out on Rs30bn in petroleum products sales tax

KARACHI: A decrease in consumption of petroleum products due to the coronavirus lockdown has approximately wiped of Rs30 billion worth of sales tax for the Federal Board of Revenue (FBR) in the past four months, sources told The News. 

The sources said the FBR estimated losses mainly due to lower consumption and a massive reduction in oil prices.

The FBR sources said sales tax collection from petroleum products fell 23% to Rs98 billion from March to June. That compared with Rs128 billion collected during the corresponding four months a year earlier.

Sources further said the lockdown, following the coronavirus outbreak in March, brought economic activities to a grinding halt which also led to the consumption of petroleum products waning during the same period.

According to the Oil Companies Advisory Committee, the sales of petroleum products fell 12% to 1.48 million tonnes in May. That compared with 1.67 million tonnes in the same month of the last year.

As per sources, sales tax collections from petroleum, lubricant and oil products have been consistently declining since the lockdown was imposed in late March. Although the lockdown has been partially lifted, an oil shortage surfaced afterwards due to declining reserves of the product in the country.

The revenue collection shortfall, under the sales tax on POL products head, was recorded at 13.59% in March, compared with the same month of the last year. It continued with a decline of 35.8% and 35% in April and May this year.

The shortfall in sales tax collection from POL products has been estimated at around Rs7 billion in June.

Sources revealed that the significant reduction in fuel prices also adversely affected the revenue collection from the sales of POL products. In line with the massive decline in international oil prices, the government also notified a significant cut on domestic sales of POL products.

The FBR collects tax from sales of four major petroleum products, including petrol, high-speed diesel, furnace oil and liquefied natural gas.

Sources further disclosed that in the past, when prices were down, the government used to adjust sales tax rates. Since the sales tax has been fixed at a flat rate of 17%, it is not possible now to do the same.

They said the FBR recorded up to 73% growth in sales tax collection from POL products in November last year. However, the collection under the head registered a contraction in growth during January-February and later on registered negative growth in subsequent months.

The FBR estimated that the total sales tax collection for the fiscal year 2019/20 at Rs374 billion, showed a 5% growth when compared with Rs356.19 billion in the last fiscal year.

Originally published in The News