The government while striving to keep the current fuel prices stable is under pressure to revise prices and taxes if the world oil prices continue on its upward trend in the next few months, official sources said. A fuel tax revision is unavoidable as government revenue is expected to decline owing to a drop in [...]

Business Times

Pressure to increase Sri Lankan fuel prices

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The government while striving to keep the current fuel prices stable is under pressure to revise prices and taxes if the world oil prices continue on its upward trend in the next few months, official sources said.

A fuel tax revision is unavoidable as government revenue is expected to decline owing to a drop in exports, zero earnings from tourism in last four months along with decreasing remittances, a senior Treasury official said.

He pointed out that the lower fuel price is only beneficial for a selected group of society maintaining vehicles while increased tax revenue can be used for social welfare and maintain public services.

The Finance Ministry has brought back import duty surcharges (taxes) on refined fuel for three months till November, the official said adding that this will not affect fuel pricing as the Ceylon Petroleum Corporation (CPC) and Lanka IOC will have to bear this additional tax cost.

Since January 2020, there have been import duty surcharges (new tax) up to June while it was not implemented thereafter till August.

It is now being introduced from September to November 2020 with the two oil firms directed not to pass this onto consumers. Under these changes, the surcharge works out to Rs.20 a litre of Petrol 92 Octane and other petrol at the same rate.

Low sulphur Super diesel is taxed at Rs. 30 and diesel with sulphur more than 10 parts per million taxed at Rs. 12. Other diesel would be taxed at Rs. 20.

Heavy costs on overheads and debt servicing of CPC and losses in fuel imports from volatile market under high customs duty incurred by Lanka IOC have made it difficult for the two entities to maintain the fuel price at present level until the end of this year, he added.

Despite losses incurred in fuel imports, drop in sales along with overheads during the COVID-19 lockdown period; Lanka IOC maintains the fuel prices at the same level of the CPC amidst operational loses, its Managing Director, Manoj Gupta told the Business Times.

The company is losing Rs. 6 to 7 per litre by selling petrol and diesel at current prices; he said adding that they welcome a considerable reduction in the customs duty to continue retail trade without any price hike till the end of the year.

He expressed the belief that the Treasury will consider the Lanka IOC request favourably to reduce taxes since the company has considerably contributed to enhance state tax revenue and employment generation with corporate responsibility even amidst COVID-19.

It has not resorted to salary cuts or retrenchment of staff even under difficult circumstances, he said, adding that the government should not increase fuel taxes at this juncture.

Lanka IOC has recorded a loss of Rs. 795.45 million in the June 2020 quarter amidst the lockdown, interim accounts showed.

Whilst, comparing to the previous quarter, the company’s revenue has sharply dropped to Rs. 10.68 billion from Rs.18.43 billion.

The company had reported a loss of Rs.239 million for 2019/20 April- June quarter, and this has increased up to Rs.795.45 million in the June 2020 quarter.

The operational profit of Rs.1,494 million recorded by the CPC in the first four months of 2020 has converted to an overall loss of Rs. 45,142 million due to the foreign exchange loss of Rs. 43,890 million, other official data showed.

The CPC’s cash flow constraints further deteriorated as total receivables from CEB, West Coast and SriLankan Airlines fell at the end of April 2020.

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