PDL collection likely to take a hit as fuel sales plummet

October 4, 2022 (MLN): The government is likely to take a major hit in non-tax revenue collections, especially the petroleum development levy (PDL) as fuel sales continue to decline in FY23.

“Contrary to the International Monetary Fund's (IMF) advice, the government further declining PDL on MS by Rs5/litre, to Rs32/litre, with effect from October 2022, makes the new FMs strategy clear - prioritizing control on CPI inflation,” said JS Global in a research note.

“Oil marketing companies’ sales for September declined 22% YoY due to petrol price increases, lower auto sales, and lower demand post floods. While petroleum products demand had remained relatively unhurt by price increases till last year, the overall macro backdrop seems to be taking a toll on POL products demands this year,” it added.

“This is clear from the recent sales volumes where POL product sales for 1QFY23 “accumulate to 4.5mnMT for Pakistan, lower by 23% YoY.”

The reduction in PDL followed by a decline in fuel sales has led to a shortfall of Rs93 billion in PDL collections vs the budgeted target.

The report said that the government will have to increase PDL soon as it gains support from declining global oil prices.

For perspective, the country’s ex-refinery prices for MS have declined by 20pc in two months. This is despite PKR depreciating against the dollar by almost 10% during the same period. While this will likely worsen inflationary pressures, the move will pave way for more conducive deliberations with the IMF and ensure external stability.

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