The federal government is said to be planning to levy a carbon tax on petroleum products in the coming budget, instead of the Rs 60 per litre increase in the sales tax in petroleum suggested by the IMF, or simply increasing the petroleum levy. A carbon tax would have the added advantage of allowing the government to show off how green it is, enabling the issuing of green bonds and e-bonds, and gaining access to all sorts of funds cheaper from multilateral financial institutions. It would also mean that, as it was not included in the federal divisible pool, the federal government could keep it all. It would also keep all the proceeds of a petroleum levy, but if it was to increase the general sales tax on petroleum products, it would have to share that money with the provinces. The IMF wants the sales tax increased, so as to help the conversion of the General Sales Tax into a Value Added Tax, so that there can be greater documentation of the economy.
It would seem that the relief to the consumer gained by a substantial cut in fuel prices of Rs 15 per litre has not gone down well with taxmen, who seem to see no reason why the consumer, once used to pay at a certain level, should not go on paying at that level, or indeed a higher level. At the same time, goes the thinking of these taxmen, there is no reason why the provinces should benefit. The only problem is that the provinces have the National Finance Commission to argue their case, and if they get petroleum levies or carbon taxes included in the federal divisible pool, then the taxmen at best can get the tax abolished, which seems to be cutting off one’s nose to spite one’s face.
Besides, it does seem short-sighted to depend much, if at all, on revenue derived from petrol. Though named a carbon tax, the purpose is not to reduce dependence, on petroleum products, but to raise revenue. That is a resource that will ultimately be phased out, in the initial phase by solar power and natural gas. The danger is that this affection for imported fuels will lead to arguments that renewables should also be taxed. That is something the government should not be doing at the moment, even if the IMF suggests it. The carbon tax can be seen as a means of stopping the IMF insisting that the NFC be revisited. Revisiting was a bad idea, that should not lead to other bad ideas, like crushing the consumer.
