World Bank asks Pakistan to raise natural gas taxes

By an OGJ correspondent

KARACHI, Dec. 2 -- The World Bank has asked Pakistan to increase significantly its tax on natural gas to boost its revenue contribution and raise the levy on petroleum, oil, and lubricant (POL) products.

The World Bank said Pakistan's natural gas and POL products have disproportionate levels of taxation despite both having similar market shares. Annual revenue for POL products and gas is about 45 billion rupees and 15 billion rupees, respectively.

The bank has advised Pakistan to use a petroleum levy to stabilize tax receipts from POL products and natural gas as it had done in 1999 to help cushion the budget against extreme fluctuations in international oil prices. The bank believes the government could earn much more through increased taxation on natural gas than what it was collecting on POL products.

POL products and natural gas account for about 80% of energy supply in Pakistan; electric power accounts for about 15% and LPG and coal constitute the balance. The country's reserves of crude oil stand at 300 million bbl.

By contrast, Pakistan has about 27 tcf in gas reserves. Gas production is around 900 bcf/year and the reserve to production ratio is more than 25 years. Also, there is scope for a substantial increase in gas production.

Pakistan's POL product imports stood at 27-31%/year of total imports and 30-36%/year of export earnings during the last 3 years. By contrast, in earlier years when international prices were lower, the share of POL product imports was less than 20%/year of total imports and 18-27%/year of total export earnings.

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