ECC dismisses proposal for 50% sales tax on gas supply

Petroleum ministry had recommended 33-percentage-point increase in tax rate

ISLAMABAD: The Economic Coordination Committee (ECC) of the cabinet has turned down a proposal to increase general sales tax by 33 percentage points on gas sales to the powerful industrial lobby.

The ECC took the decision after considering proposals of the Ministry of Petroleum and Natural Resources in a meeting held on November 25, officials said.

The ministry suggested a reduction in the gas sale price but at the same time advocated a higher sales tax at 50% compared to existing 17% for industrial consumers.

The gas price cut was also proposed for captive power plants of the industrial sector, though they were receiving gas at the cost of power producers. Earlier, the National Accountability Bureau (NAB) had investigated the matter and described as criminal act the gas supply to captive power plants by denying the fuel to power producers that were forced to shut down.



The petroleum ministry insisted that in the current environment of sharply lower oil prices, there was a strong justification for providing some relief to the industrial sector, which was becoming uncompetitive in the international market, resulting in loss of export earnings.

Accordingly, it said, the gas price for industries and captive power plants may be reduced from Rs600 per million British thermal units (mmbtu) to Rs400 per mmbtu. It also recommended that in accordance with the Fertiliser Policy 2001, the industrial gas price should also be applicable to the gas fuel for fertiliser plants.

However, the ministry said the current 17% sales tax amounting to Rs102 per mmbtu may be increased to Rs200 or 50%.

At that time, industrial consumers were paying Rs702 per mmbtu comprising gas price of Rs600 and sales tax of Rs102.

The ministry proposed gas supply at Rs600 per mmbtu including Rs400 as the gas price and Rs200 as sales tax. Under this plan, the industrial consumers would enjoy a relief of Rs102 per mmbtu.

However, the ECC dismissed the recommendation and fixed sales tax at a lower level at Rs100 per mmbtu.

Separately, the petroleum ministry told the ECC that the two gas utilities - Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company (SSGC) - were purchasing gas from hydrocarbon exploration and production companies and transmitting and distributing gas to different types of consumers.

They were running their operations on the formula of cost-plus-return on assets in line with the licences granted by the Oil and Gas Regulatory Authority (Ogra).

The ministry argued that SNGPL’s revenue shortfall in the prior year was the outcome of denial of increase in gas sale prices due to various reasons including litigation in court, some delay by Ogra in determination of the revenue requirement and social and economic considerations.

However, without the increase in gas prices, the revenue shortfall of Rs51 billion was expected to come down to Rs37 billion by the end of the year.

Published in The Express Tribune, December 7^th, 2016.

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