The recently announced federal budget remained a non event for the oil and gas sector, with status quo maintained for both the deemed duty on HSD for refiners and margins for oil marketing companies (OMCs).
However, the government announced an ambitious petroleum development levy (PDL) target of Rs120 billion from POL products versus a revised target of Rs90 billion in FY11. Historically, according to the estimates tax collection from POL products accounts for 28 percent of the total tax revenues.
This includes receipts from PDL, sales tax, federal excise duty and customs duty. The government in its Annual Plan for FY12 has set an oil import bill target of $12.1billion, a growth of six percent annually.
He added that the government will find it difficult to meet its total tax revenue target of Rs2.1trillion (up 23.5 percent annually). Moreover, with the government expecting the oil import bill to increase by six percent and our expectation of three percent depreciation in the exchange rate with the dollar, the collection from sales tax, federal excise duty and customs duty should increase by nine percent.
Based on its historical contribution of 28 percent to total tax revenues and an expected increase of only about nine percent, we feel the growth of 23.5 percent envisaged in total tax revenues may fall short of its target, said Atif Zafar at JS.
The cash proceeds from the exchangeable bond issues and new equity offerings as planned by the Privatisation Commission could provide the government with necessary liquidity to clear most of the circular debt back log created in the last 4 years.
Further, plans to raise tariffs by 12-15 percent in the upcoming fiscal year would enable WAPDA to somewhat bridge the gap between generation cost and selling price, partially capping further accumulation in the circular debt.