Will It Stop at Rs.332?

Will It Stop at Rs.332?

Mental shocks can lead someone to experience delusions, and the same can be said for financial shocks. 

Among other differences, what sets apart the present generation of motorists from their elders is that the latter never had to pay Rs.332 for one litre of petrol. 

Lately, especially since September 16, 2023, some of us have started to believe that the per-litre price of petrol can’t go up any further. This belief is largely driven by the fact that, in Pakistan’s entire history, motorists have never had to pay this much for petrol. However, upon closer examination, it becomes clear that this belief is based on hope rather than cold analysis of historical trends of oil prices, economics and policy. 

Why Are Petrol and Diesel So Expensive?

The primary reason for these price increases is the fluctuating value of the US Dollar, as international oil prices aren’t exceptionally high right now. In the month of August, they hovered around $87 a barrel, which is a far cry from the $147 per barrel cost of crude in July 2008. However, data from OPEC’s official site shows an upward trend, which doesn’t bode well for Pakistani motorists.

The US Dollar, both in the interbank and open markets, has depreciated considerably in the past few weeks, although it is being attributed to administrative measures rather than reflecting a stronger economy. Many market analysts agree that this downward trend is likely to reverse in the near future.

Even if the international oil rates were to decrease, and the Rupee were to appreciate against the US Dollar, there’s still the multitude of taxes that the government collects from each liter of petrol sold at the pumps.

Here is the breakdown of the per litre price of petrol:

Ex Refinery – Price per liter as sold by the refineryRs.252
PL – Petroleum Levy or Petroleum Development LevyRs.60
GST – General Sales TaxRs.0
IFEM – Inland Freight Equalization MarginRs.6
OMC – Oil Marketing Companies MarginsRs.6
DC – Dealers’ CommissionRs.7

As can be seen, the government may sell petrol at Rs.252 per liter should it decide to eliminate all additional costs in the form of taxes and levies. This is unlikely, since selling petroleum products is one of the main sources of income for any government in Pakistan, especially now when it is hard-pressed for cash.

Even otherwise, these high taxes help cover the rising international prices of oil without sacrificing tax revenue. Currently, the taxes on petrol and high-speed diesel (HSD) are lower than what international institutions like the IMF recommend. For example, the past three governments have successfully resisted applying the general sales tax (GST) to petroleum products.

In summary, yes, it can exceed Rs.332 in cost, and the fact that many of us find it challenging to pay this price does not lower its cost at the petrol pumps.

You may also like to read:

The Suffering Wallets: A Painful Petrol Price Hike of Rs.26/L

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