Tuesday, 25 July 2017 05:27

Sri Lanka to implement fuel pricing formula on IMF directive

Sri Lanka will implement a cost reflective transparent fuel pricing, based on international market prices soon following a directive made my International Monetary Fund.

The country has agreed to gain fiscal consolidation by implementing transparent energy pricing and tightening policy rates, a senior IMF official said.
according to this fuel pricing formula, prices should change with international market prices like for many other commodities people consume
There is also a strong case to gradually introduce corrective taxes to both petrol and diesel to account for externalities, this can be done with increments of Rs 0.5 a litre per month so that the consumer will not feel the pinch.
Petrol is in underpriced in Sri Lanka, at the very least it must be fully cost reflective of all taxes paid. There remains a case to further increase prices to fully reflect all externalities especially congestion and traffic accidents
Further, with more fuel-efficient vehicles due to hybrids and small engines the tax intensity per unit of road mileage has gone down over the years.
Diesel is significantly underpriced, enjoys a post-tax subsidy and there are no corrective taxes applied although consumption is more than 50 per cent of Petrol.
On a per liter basis Petrol retails at Rs. 117, the taxes are approximately Rs. 56.50. The country’s motorists consume around 130 million liters a month, even at reduced world market prices the loss to the industry due to under recovery of taxes is Rs. 1.04 billion a month, if the current trend holds it works out to Rs. 12.48 billion a year.(LI NEWS)

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