Every time the federal budget is announced, there is lot of talk about taxes, both direct and indirect. The federal government assesses resources of its revenue generation and the people at large work out how certain taxes on income, wealth, capital value, sales and purchases of goods imported, exported, produced, manufactured or consumed export duties, customs duties, federal excise duty, general sales tax and petroleum will impact and affect them in the coming days, weeks and months.
Before discussing these taxes, it is pertinent to mention resource mobilisation measures which the federal government undertakes for revenue generation. Resource Mobilisation is essential to meet the recurring as well as development expenditures of the federal government. At the federal level, resources are generated through a well-coordinated and concerted effort by revenue collecting agencies topped by the Federal Bureau of Revenue (FBR) and other administrative units down the line.
The constitutional requirements for maintaining the federal receipt is to strictly adhere to the provisions of Article 78 of the Constitution which says that all revenues received by the federal government shall form part of the Federal Consolidated Fund. Article 78 further provides that all other funds received by or on behalf of the federal government shall be credited to the Public Account of the Federation.
Federal revenue receipts are broadly categorised as tax revenue and non-tax revenue. Tax revenue collected by the FBR constitutes as the divisible pool of taxes which are then distributed amongst the provinces according to the provisions of the National Finance Commission Award.
External resources comprise of project loans and grants, programme loans and other loans which are received from specialised international financial institutions and friendly countries for specific development needs. Federal receipts, as such, are also classified as internal and external receipts. Internal receipts comprise of revenue receipts and capital receipts whereas external receipts comprise of project, loans and grants by the federal government from its development partners.
The federal government also generates resources through levies, royalties in addition to direct taxes for meeting its pressing financial requirements and fulfilling the obligations made to the International Monetary Fund (IMF).
Petroleum levy is provided under the Petroleum Products Ordinance of 1961, amended from time to time according to the pressing financial needs and requirements of the federal government. Following the announcement of the budget of 2022-23 and the demands of the IMF for providing continued financial assistance under the Extended Fund Facility (EFF) as per the provision, the import price of oil is added with the inland freight equalisation margin.
Furthermore, as per the Natural Gas Development Surcharge Ordinance of 1967, every company mentioned in the schedule collects and pays to the government a development surcharge equal to the differential margin–i.e. the amount by which the fixed sale price exceeds the prescribed price of natural gas.
When the royalty on oil and gas is concerned, Article 16 of the Constitution provides that the royalty collected by the government shall not form part of the Federal Consolidated Fund and shall be paid to the provinces in which the well-head of natural gas is situated. Further, as per the seventh National Finance Commission Award, each of the provinces shall be paid a share of the net proceeds of the total royalties on crude coil.
The Petroleum Exploration and Production Policy of 2012 imposes royalties on exploration and the production of oil and gas. The policy as such provides that royalties will be payable at the rate of 12.5 per cent of the value of petroleum at the field gate by the federal government to the provinces.
Crude oil and natural gas is extracted by the exploration and production companies working under the Petroleum Concession Agreement. These companies sell the crude oil to the refineries at the rate prevailing in the international market based on the formula as per the agreement provisions. The companies agree to sell the crude oil to the refineries at different discounted rates on attainment of certain milestones as per the agreement. The amount of discount is retained by the refineries while making payments of crude oil to the exploration companies and deposited in the government account.
Furthermore, the Gas Infrastructure Development Cess Act of 2015 provides the legal framework to levy and collect the development cess from the gas consumer at the rates provided in the second schedule of the act. The gas company is responsible for billing the cess to the gas consumers, its collection and its onward payment to the government. The cess collected is to be utilised by the government for or in connection with infrastructure development of the Iran Pakistan Pipeline Project, Turkmenistan-Afghanistan-Pakistan-India (TAPI) Pipeline project and Liquefied Natural Gas and other ancillary projects,
According to the budget documents, the federal government is estimated to receive millions during financial year 2022-23 on account of petroleum levies, Natural Gas Development surcharges, royalties on oil, gas, discounts on crude prices, and levies on LPG.
Muhammad Zahid Rifat
The writer is Lahore-based Freelance Journalist, Columnist and retired Deputy Controller (News), Radio Pakistan, Islamabad and can be reached at zahidriffat@gmail.com
