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Finance Ministry robbing people via GST imposition
http://www.thenews.com.pk/top_story_detail.asp?Id=23357
Monday, July 20, 2009
By Khalid Mustafa
ISLAMABAD: The governments oil pricing formula is fraught with glaring anomalies, which would result in literally robbing the ordinary people of their money.
The first anomaly is that instead of levying the 16 per cent GST on the basic import landing cost, the government is imposing the GST after first loading up all other charges, including the Inland Freight Equalisation Margin (IEFM), oil marking companies (OMCs) margins, dealers commission margins and huge petroleum levy. This has been done deliberately to beef up the revenue intake through an inflated GST.
This is how this immoral extraction plan works. According to the international prices of crude oil during the period from June 29 to July 17, the landed cost of motor gasoline (Petrol) came to Rs 34.39 per litre and if the GST was to be applied on this cost, then the landed cost would come to Rs 5.50 per litre. But instead, the ministry is imposing GST at the rate of Rs 8.22 per litre after inflating the price of petrol to Rs 51.37 per litre by first levying the IFEM of Rs 3.56 per litre, OMCs margin of Rs 1.52 per litre and dealers margin of Rs 1.90 per litre.
This means that the POL products end consumers are paying taxes upon taxes. In this manner, the government is pocketing an unjustified extra Rs 2.72 on every litre of petrol under the GST alone.
Similarly, the government is collecting GST of Rs 7.85 per litre on kerosene oil after including the price of IFEM, OMCs margin, dealers margin and petroleum levy, which actually stands at Rs 5.33 per litre at landed price of Rs 37.12 per litre. This means that the government is fleecing the poor masses by minting unjustified Rs 2.52 per litre on kerosene oil.
The landed cost of high speed diesel (HSD) currently stands at Rs 40.82 per litre as per prices in the global market. The GST on import parity price of HSD comes to Rs 6.53 per litre, but the government is charging Rs 8.65 per litre as GST when the price of the said product comes to Rs 54.08 per litre after including the IEFM of Rs 2.41 per litre, OMCs margin of Rs 1.35 per litre and petroleum levy of Rs 8 per litre. So the government is earning an illegal Rs 2.12 per litre on the HSD.
Dr Asim Hussain, Adviser to Prime Minister on Petroleum, on Sunday took a daring step and made the oil pricing formula public, admitting that not levying of GST on POL products at the import stage was an anomaly and he would not only talk to the top men of the Ministry of Finance on the issue, but soon would forward a summary to the ECC to take cognisance of this. He assured that this irregularity would be waived as it was adding to the financial miseries of consumers.
The second anomaly is found in the mechanism to calculate the Inland Freight Equalization Margin, as it is quite strange that the oil prices in the international market are going down during the period of June 29 to July 17, which is why the landed cost of the POL products have also tumbled, but the IFEM has shockingly increased under the faulty formula. This can easily be gauged by the facts written in the oil pricing formula in which it is shown that as per the notification of July 9, 2009, the landed cost of petrol was Rs 36.59 per litre and its IFEM was at Rs 3.37 per litre, which shockingly rose to Rs 3.56 per litre when the current landed cost of petroleum decreased to Rs 34.39 per litre. Similarly, the landed cost of kerosene oil has reduced to Rs 37.12 per litre from Rs 39.26 per litre, but the IFEM has increased to Rs 4.31 per litre from Rs 4.16. The import parity price of high speed diesel has tumbled to Rs 40.82 from Rs 40.94 per litre, but the IEFM has increased to Rs 2.41 per litre from Rs 2.22 per litre.
Another glitch in the pricing formula is the OMCs and dealers margins. Earlier, the OMCs and dealers margin was as per the percentage of the product cost but under the new scenario, OMCs margin has been calculated at 4 per cent of the cost on MS, HOBC, kerosene and light diesel oil subject to a minimum of $45 and maximum of $80 of Arab light crude oil per barrel. Under the new formula, OMCs margin on petrol will be Rs 1.09 per litre at the minimum and Rs 1.80 at the maximum. However, OMCs margin on HSD has been fixed at Rs 1.35 per litre. It is pertinent to mention that earlier the OMCs margin was 3.5 per cent of the product cost.
The dealers margin has also been fixed at 5 per cent of the cost on MS, HOBC subject to a minimum of $45 and maximum of $80 of Arab crude oil per barrel. The dealers commission will be Rs 1.36 per litre on motor spirit at the minimum and Rs 2.25 per litre at the maximum. The dealers commission has been fixed at Rs1.50 per litre. This margin was earlier 4.5 per cent, which was later increased under the new formula to provide maximum benefit to the dealers and OMCs.
http://www.thenews.com.pk/top_story_detail.asp?Id=23357
Monday, July 20, 2009
By Khalid Mustafa
ISLAMABAD: The governments oil pricing formula is fraught with glaring anomalies, which would result in literally robbing the ordinary people of their money.
The first anomaly is that instead of levying the 16 per cent GST on the basic import landing cost, the government is imposing the GST after first loading up all other charges, including the Inland Freight Equalisation Margin (IEFM), oil marking companies (OMCs) margins, dealers commission margins and huge petroleum levy. This has been done deliberately to beef up the revenue intake through an inflated GST.
This is how this immoral extraction plan works. According to the international prices of crude oil during the period from June 29 to July 17, the landed cost of motor gasoline (Petrol) came to Rs 34.39 per litre and if the GST was to be applied on this cost, then the landed cost would come to Rs 5.50 per litre. But instead, the ministry is imposing GST at the rate of Rs 8.22 per litre after inflating the price of petrol to Rs 51.37 per litre by first levying the IFEM of Rs 3.56 per litre, OMCs margin of Rs 1.52 per litre and dealers margin of Rs 1.90 per litre.
This means that the POL products end consumers are paying taxes upon taxes. In this manner, the government is pocketing an unjustified extra Rs 2.72 on every litre of petrol under the GST alone.
Similarly, the government is collecting GST of Rs 7.85 per litre on kerosene oil after including the price of IFEM, OMCs margin, dealers margin and petroleum levy, which actually stands at Rs 5.33 per litre at landed price of Rs 37.12 per litre. This means that the government is fleecing the poor masses by minting unjustified Rs 2.52 per litre on kerosene oil.
The landed cost of high speed diesel (HSD) currently stands at Rs 40.82 per litre as per prices in the global market. The GST on import parity price of HSD comes to Rs 6.53 per litre, but the government is charging Rs 8.65 per litre as GST when the price of the said product comes to Rs 54.08 per litre after including the IEFM of Rs 2.41 per litre, OMCs margin of Rs 1.35 per litre and petroleum levy of Rs 8 per litre. So the government is earning an illegal Rs 2.12 per litre on the HSD.
Dr Asim Hussain, Adviser to Prime Minister on Petroleum, on Sunday took a daring step and made the oil pricing formula public, admitting that not levying of GST on POL products at the import stage was an anomaly and he would not only talk to the top men of the Ministry of Finance on the issue, but soon would forward a summary to the ECC to take cognisance of this. He assured that this irregularity would be waived as it was adding to the financial miseries of consumers.
The second anomaly is found in the mechanism to calculate the Inland Freight Equalization Margin, as it is quite strange that the oil prices in the international market are going down during the period of June 29 to July 17, which is why the landed cost of the POL products have also tumbled, but the IFEM has shockingly increased under the faulty formula. This can easily be gauged by the facts written in the oil pricing formula in which it is shown that as per the notification of July 9, 2009, the landed cost of petrol was Rs 36.59 per litre and its IFEM was at Rs 3.37 per litre, which shockingly rose to Rs 3.56 per litre when the current landed cost of petroleum decreased to Rs 34.39 per litre. Similarly, the landed cost of kerosene oil has reduced to Rs 37.12 per litre from Rs 39.26 per litre, but the IFEM has increased to Rs 4.31 per litre from Rs 4.16. The import parity price of high speed diesel has tumbled to Rs 40.82 from Rs 40.94 per litre, but the IEFM has increased to Rs 2.41 per litre from Rs 2.22 per litre.
Another glitch in the pricing formula is the OMCs and dealers margins. Earlier, the OMCs and dealers margin was as per the percentage of the product cost but under the new scenario, OMCs margin has been calculated at 4 per cent of the cost on MS, HOBC, kerosene and light diesel oil subject to a minimum of $45 and maximum of $80 of Arab light crude oil per barrel. Under the new formula, OMCs margin on petrol will be Rs 1.09 per litre at the minimum and Rs 1.80 at the maximum. However, OMCs margin on HSD has been fixed at Rs 1.35 per litre. It is pertinent to mention that earlier the OMCs margin was 3.5 per cent of the product cost.
The dealers margin has also been fixed at 5 per cent of the cost on MS, HOBC subject to a minimum of $45 and maximum of $80 of Arab crude oil per barrel. The dealers commission will be Rs 1.36 per litre on motor spirit at the minimum and Rs 2.25 per litre at the maximum. The dealers commission has been fixed at Rs1.50 per litre. This margin was earlier 4.5 per cent, which was later increased under the new formula to provide maximum benefit to the dealers and OMCs.
