In the wake of a hike in liquefied petroleum gas (LPG) prices, the Petroleum Division has come up with a new policy that eradicates tax disparity while imposing a regulatory duty on imported LPG.
The Oil and Gas Regulatory Authority (Ogra) announced the highest price for gas in the last several decades at the rate of Rs2,403 per 11.8kg cylinder.
The current LPG policy facilitates LPG importers who have made profits of over Rs20 billion as a result of the disparity in taxes. The local LPG industry has been paying 17% general sales tax (GST) while importers have been paying 10% GST. Around 7% of the GST is being pocketed by LPG importers.
On top of that, the government had exempted the LPG importers from regulatory duty on LPG imports through an amendment in the LPG Policy 2015 via issuing SRO to benefit the importers.
Features of the new policy
The Petroleum Division put forth a draft LPG Policy 2021 to the Cabinet Committee on Energy. All major stakeholders were consulted expansively to shape up the policy contours under the ministry of energy.
The Petroleum Division drafted a proposal imposing a minimum of Rs2,000/MT of regulatory duty (RD) on imported LPG in order to protect local production while safeguarding end consumers from excessive price spikes.
It also suggests the imposition of 7.5% GST for both local and imported supplies of LPG in order to create parity between the two. It would also allow them to avoid massive GST-based price distortions.
The new draft further recommends that similar to the local LPG, imported LPG should also attract uniform tax treatment at 29% corporate income tax on net earnings.
LPG is used by the most marginalized segment of society. It is already more expensive than piped gas hence imposing a petroleum levy as a general principle is not recommended.
Petroleum Division says that the petroleum levy can be imposed on LPG sales to industrial and commercial consumers.
Imposition of petroleum levy on industrial and commercial consumers is one thing but implementing and recovering the levy from those consumers is a different challenge altogether. Nevertheless, the Petroleum division advocated that poor domestic consumers must be insulated from the levy.
The policy draft comprises of a mechanism for de-regulation which will eliminate immediate concerns pertaining to producer price and disposal of local LPG produced by refineries, E&P companies and others. The Division also emphasized the need for a mechanism for broad oversight in order to promote healthy competition.
According to the new policy, the market should decide the demand for import volumes. It also pushes Ogra to make sure that a balance is maintained between state-owned enterprises (SOEs) and the private sector for imports.
The regulator is to further develop and present comprehensive LPG Auto Fuel Regulations with preferential use in three-wheelers as well as public service vehicles/vans under security-checked LPG kits.
It also stressed rationalization in LPG import terminal charges via substantial financial incentives for infrastructure development.
Price hike during winters
The LPG industry has requested the government to put a cap on the LPG producers’ prices during the winter season in order to curtail the price hike.
Presently, mafias are also manipulating the prices of LPG while trying to jeopardize the efforts of the government. Prime Minister Imran Khan had taken notice of the spikes in LPG prices.
The price for crude oil is also on the rise, while the rupee has reached 170 against the dollar. Members of the local LPG industry are concerned that this indispensable commodity might become unaffordable for the majority of the citizens. They said that in order to curb the price hike, it is critical to revise the taxes/levies.
They stressed that neighboring countries are subsidizing in order to maintain the price as the price hike will greatly impact the purchasing power of those citizens who are completely dependent on this for fuel.
As per the officials of the local LPG industry, the government should cap the maximum local producer’s price of LPG for winters at Rs90,000 per ton.
The Sui Southern Gas Company has been hesitant to resume operations of Jamshoro Joint Venture Limited (JJVL) despite the price hikes. The Economic Coordination Committee (ECC) has decided to recommence operations of JJVL. The shutdown of JJVL, led to 15% LPG being out of the system. This led to an increase in the share of LPG imports.