Fuel and taxes

Yusuf Mansur

Jordan’s fuel policy leaves a lot to be desired. The claim that there is an oil subsidy has never been truly explained to the public, and for a good reason. Available current figures show a surplus in government revenues from the sale of fuel. Recent moves to impose a tax on fuel will only benefit the government and provide its ever-expanding appetite for more funds with a solid source of supply.

Oil prices increased from $25 per barrel in September 2003 to $60 per barrel in August 2005 and $78.4 per barrel in July 2006. However, prices have dropped recently to less than $57 per barrel. Meanwhile, Jordan increased the price of oil derivatives four times in two years (2005-2006). Prices of oil derivatives increased since 2001 by 77 per cent for butane gas, 191 per cent for kerosene, 56.4 per cent for regular gasoline, 63.5 per cent for the special (called super) gasoline which has a lower lead content, and 50.6 per cent for unleaded gasoline.

Currently, the price of unleaded gasoline (JD0.64 per litre), which contains the least amount of lead — a substance known to cause mental retardation among children — is by far the highest among gasoline types (regular gasoline sells at 0.605 per litre, and the special gasoline sells at 0.605 per litre). So an environmentally conscious person is penalised for his/her efforts through greater outlays.

There is more: the price of regular gasoline in the US, which contains less lead than its Jordanian counterpart, is $0.61, which is the same as the price of the Jordanian regular gasoline sold by the Jordan Petroleum Refinery Company (JPRC). But the per capita income in the US is exactly nine times that in Jordan, even after considering the cost of living differences. Thus, the average Jordanian, already burdened by high import and special taxes on vehicles, that reach almost 80 per cent of the value of the imported car (vis-à-vis a meager 6 per cent tax on foreign vehicle imports in the US), has to pay for gasoline an amount that is equivalent to its American counterpart.

While the US and other Western countries offered tax breaks to those who opted to use more efficient production and means of commuting, Jordan didn’t; there were no tax breaks or subsidies for those who desired to consume less fuel. In fact, in mid-2005, the government lowered customs on large engine motor vehicles and raised it on small engine vehicles. Given that the best car engines burn at most 35 per cent of their fuel, the government policy seemed to encourage greater pollution and fuel consumption.

Moreover, the quality of Jordanian oil derivatives produced by a government monopoly, the JPRC, is low. Diesel oil has been determined, according to a report published last year, to contain much more lead than internationally allowed. The JPRC responded to the public and media uproar by stating that its equipment was inefficient and required updating. The JPRC also failed, in the recent past, to meet the rising demand for butane canisters (many of which had been considered hazardous due to age and damage). It stated in response to criticism concerning market shortages and hoarding by retailers that JPRC did not expect such a high demand — Jordan was in the midst of a very cold winter season and a nine-day holiday during which families huddled in their cold rooms.

The government is expected this year to make a surplus of JD167 million from selling oil derivatives to the public. This surplus would be only acceptable if it were applied to improving the environment. The government has successfully turned the so-called subsidy into a government revenue source. However, such rising prices will cause greater incentives for smuggling, higher production costs, greater inflation rates, lower productivity and will have many other negative impacts.

Meanwhile, there are rumours that the government is considering imposing an additional tax on petroleum derivatives. When will rising tax rates and continuous tax inventions stop?