ISLAMABAD - The cash-strapped government is giving a New Year ‘gift’ to the hard-pressed people in the form of increase in General Sales Tax (GST) on petroleum products, denying them the full benefit of the plunge in global oil prices.

The PML-N government on Tuesday enhanced the GST on petroleum products to 22 percent from 17 percent to generate additional revenue. The Federal Board of Revenue (FBR) has notified the new GST rates, to be applicable from the first day of 2015.

The tax has been increased on motor spirit, HOBC, Kerosene, light diesel oil (LDO) and high-speed diesel oil. The government has taken this anti-people decision as it faced massive revenue collection shortfall in the first six months (July to December) of the fiscal 2014-2015 due to declining oil prices in the country.

The government had reduced the prices of petroleum products by more than Rs20 per liter over the last couple of months (November and December), which adversely affected its revenue collection.

Feeling heat of the situation, Finance Minister Ishaq Dar held a series of meetings with officials from the ministries of finance and petroleum, the oil and gas regulatory authority (Ogra) and the FBR over the last couple of days (Sunday and Monday) to find ways for retaining some benefit of the reduction in oil prices in the world market, instead of passing on full benefit to the consumers.

During the days of PTI protest, all government dignitaries, including the PM, had claimed that the reduction in petroleum prices was in spite of the protests and that they would have been able to give even more relief to the masses had the protests not been initiated to hamper economy. The decision to raise GST comes, perhaps coincidently, only days after the end of PTI protests.

Sources said that the officials had discussed several options including imposing Regulatory Duty, Federal Excise Duty and increasing General Sales Tax on petroleum products. However, the economic managers of the country went for enhancing GST starting with the dawn of New Year.

The government would review the petroleum products prices today (Wednesday), which would be effective from Thursday. Earlier, before increasing GST rate, Ogra estimated that petrol would reduce by Rs6.56 per litre, HSD by Rs9.91, HOBC by Rs17.61, kerosene by Rs13.23 and LDO by Rs12.56 as result of falling oil prices. But now the government would re-calculate the prices on the basis of new rate of GST.

FBR Chairman Tariq Bajwa on Monday told the finance minister that the government had incurred a revenue ‘loss’ of 70 billion rupees due to passing on the benefit of reduced petroleum prices to the general public.

Despite the above-said reduction in prices over the last two months, the government was already charging full petroleum levy on all petroleum products, along with 17 per cent general sales tax. The petroleum levy is in the range of Rs6 to Rs14 per litre. The increase in GST would further enhance the taxation on petroleum products.

The FBR had collected Rs900 billion in first five months (July to November) of the ongoing fiscal year with a shortfall of Rs60 billion. The tax department has to collect Rs 1,910 billion in the remaining seven months (December to June), which seems difficult to achieve without additional revenue measures. Therefore, with the simple mathematics, the government has decided to increase the general sales tax on oil products.