Published in MTimes 12 Oct 2018
Petroleum prices have remained unchanged thanks to the provision of an amount of Rs350 million from the Subsidy Reserve Fund. The retail price of Mogas should have been increased by Rs 0.85 per litre or 1.72% based on US$729.46 per metric tonnes for Mogas and the exchange rate of Rs 35 per US$.
Though the reason given for maintaining the prices at their present level is that the percentage increase is below the prescribed 4%, we believe that there was little choice for government at this juncture, despite the huge subsidy, when a possible hike in petroleum prices could have unsettled all its plans. It cannot afford to allow fuel prices to rise as this would have aggravated its plunging popularity; the best it could do was to kick the can down the road. If fuel prices rise further, it will become increasingly difficult for Government to continue subsidising it; it will then see how far down the road it can kick it further until next year’s general elections.
At this critical juncture when it is moving its important pieces on the political chessboard and juggling a delicate fiscal situation with finding funds to feed its numerous ambitious projects ahead of the general elections, at the very least it did not want to risk displeasing the electorate. It also avoided the cascading effects on transportation costs which would have driven up inflation to above 3.5% and jeopardise the expected 3.9% GDP growth rate for 2018.
Our concern is different; is it justified to have taxes and charges comprising more than half the cost of fuel? Government’s arguments are that these taxes help it in meeting prioritised capital expenditures. Is that indeed the case? For the past three budgets, capital expenditures, excluding the off-budget expenditures, have hovered around a mere 1.7% of GDP annually; and for budget 2017-18, capital spending was around 65% of the amount earmarked. Thus our tax money is not being used to build a more advanced economy for the future generations, it is being spent on recurrent expenditure. This is irresponsible!
Moreover, the fuel taxes are also a tax on production as transport costs are an important element of the cost of production. Gasoline prices around the world show that our fuel prices are much higher than many of our competitive textile producers, namely Indonesia, India, Turkey, Bangladesh, Malaysia, South Africa, Sri Lanka, Philippines, Kenya, Thailand, Morocco, China, and Madagascar. Thus the fuel taxes are harming our industry’s competitiveness
If Government is not using our money properly and is affecting the country’s competitiveness, it must slash the fuel taxes and other charges. And concurrently, it should reduce wasteful spending and implement crucial reforms to curtail recurrent expenditure and find alternative sources of revenue like improving the progressivity of the tax system, hiking the taxes on Smart Cities and Property Development Schemes and carry out the divestiture of some public assets.
