Citizens have had to endure high cost of living for the past six months since new taxes and levies were imposed on petroleum products. And to a very large extent, the ensuing periods have not been greeted by people with nonchalance, as is typically the case regarding other national issues.
The public’s sentiments have been thoughtfully expressed by experts, CSOs, among others— the scrapping of the ‘nuisance taxes’ by the government appear to be a deafening call. This has eventually signaled the regulator (NPA) to acknowledge and announce a complete review of the pricing system currently in practice.
While this is in the right direction, one thing remains unchecked. The fact that petroleum service providers— oil marketing companies (OMCs) and bulk oil distributing companies (BDCs) may take advantage to hike their margins and premiums in the event of the downward revision of the taxes, and therefore not have the impact so desired.
Other conditions at play aside reduction of taxes
Speaking to the Vaultz News, Dr Yusif Sulemana, an Energy expert and Senior Oil Production Operations Specialist with Petroleum Development Oman noted should the government reduce taxes and global dynamics stabilize, OMCs and BDCs should be monitored so that they do not take advantage of the situation to hike their margins and premiums.
Elaborating further, he noted that the reduction in taxes would give consumers some kind of window from which they could benefit, but in a lot of the cases, petroleum service providers also increase their margins. Thus, the reduction in taxes is eventually nullified and do not translate to the consumer through affordable petroleum prices.
“If the taxes actually come down, there is going to be a window, and that’s where consumers are going to benefit. But sometimes what does happen is that, the Petroleum Service Providers (PSPs)— the BDCs and OMCs will also increase their margins. That is, the dealers and marketers margin from the OMC side and then premium from the BDC side.
“[And] they can hike it to cover whatever the tax is going to match up. So, the condition is that as long as international dynamics (crude oil prices, exchange rate) remain stable, PSPs have no justification of increasing their premiums whatsoever, especially when the taxes are reduced.
“Otherwise, what will happen is, government can reduce the taxes but the PSPs can also increase their premium. That is always what happens, and at the end of the day the consumer will not benefit again.”
Dr Sulemana
Oversight control over OMCs/BDCs to ensure taxes reflect in reduced prices
Noting the extent of this situation, he affirmed that, “maybe we need a little bit of control of a sort” so that the reduced taxes can be transferred to the consumer in reduced prices.
“We are in difficult times… Petrol prices getting around GHS6.52, is so high [and] I think we are about one of the highest in the world, not even the sub-region. We are paying so much undoubtedly.”
Dr Sulemana
He advanced that, the government’s purpose for increasing the taxes is defeated since consumers are not spending that much into the economy. He advocated the simple reason is that “taxes are high, pump prices are high,” adding that “why don’t you remove it, get some space, let people spend and then you can get back your taxes”.
“Assuming two conditions: international dynamics remain stable, exchange rate is stable and taxes or margins are reviewed downwards, we don’t expect PSP’s to hike their premiums and margins. Other than that, they will reduce the taxes, but margins and premiums will be high because they don’t have a ceiling, they can hike it to any level they want.”
He reiterated that “PSPs cannot justifiably increase their margins and premiums” when the above situations hold. “They have to let consumers benefit and that way, the National Petroleum Authority (NPA) has to come in and monitor. Because, they play the oversight responsibility within the downstream space.”
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