New LPG policy favours importers

Petroleum Division recommends removal of advance tax on imports in proposed policy


Zafar Bhutta August 05, 2021

ISLAMABAD:

Despite opposition from local liquefied petroleum gas (LPG) producers, mainly state-run companies, the Petroleum Division is further strengthening the monopoly of influential LPG importers by recommending cost and freight (C&F) prices and removal of advance tax on imports in the new proposed LPG Policy 2021.

At present, the local LPG industry is paying 17% general sales tax (GST) whereas the importers are paying 10% GST.

In the new LPG policy, the Petroleum Division has recommended 10% GST for locally produced and imported LPG. However, it has recommended the removal of advance tax on LPG import to favour the importers. According to estimates, the LPG importers have pocketed around Rs20 billion due to the reduced rate of GST.

Now, the Petroleum Division has suggested the removal of advance tax on LPG import.

Regulatory duty

Earlier, the government had favoured LPG importers by removing the regulatory duty on LPG import.

In a former draft, the Petroleum Division had proposed imposing regulatory duty on LPG import through the land route and exempted the sea route to favour the importers. However, the move sparked criticism from the industry.

Now, the Petroleum Division has proposed imposing regulatory duty on LPG import through the land and sea routes.

Petroleum levy

State-run LPG producers like Oil and Gas Development Company (OGDC), Pakistan Petroleum Limited (PPL) and Pak Arab Refinery Limited (Parco) had demanded time and again to remove the petroleum levy on locally produced LPG.

They were of the view that LPG imports were actually coming from Iran at discounted rates.

During various meetings to address the taxation disparity between the local and imported LPG, the LPG importers were reluctant to share data regarding invoices of all LPG imports despite being asked by the Ministry of Petroleum.

According to officials, all LPG imports are coming from Iran and the importers have set up “dummy offices” in Dubai where documents are manipulated as the prices being quoted in the market are CP-$180 to -$200 per ton.

This shows that imports are actually being made from Iran, because if LPG was imported from the Gulf, particularly Saudi Arabia, it was impossible to fetch this price.

Moreover, the product, coming to Pakistan, is of substandard quality and requires immediate steps to address the safety and quality concerns.

The LPG industry says that there is nothing wrong with the existing LPG Production and Distribution Policy 2016.

The local industry said that the import mafia, through manipulation, got a waiver from a Customs notification in October 2018 through the support of the ministry and Federal Board of Revenue (FBR) officials where entries related to regulatory duty on imports, which was equivalent to PDL on local production, were omitted and similarly GST on imports was reduced from 17% to 10%, while on local production it remained at 17%.

In the new policy, the Petroleum Division has recommended to continue the GST on locally produced LPG.

The Petroleum Division is of the view that adequate petroleum levy shall be applicable to the local LPG to be paid by the producer(s). The Oil and Gas Regulatory Authority (Ogra) shall assess and notify the petroleum levy per metric ton every month, which cannot be less than zero in any event.

Relaxation in PPRA rules

To provide a level playing field to state-owned enterprises (SOEs), enable them to compete in the market, take leading role to ensure stability in the market, maintain demand-supply equilibrium in the country and avoid any product shortages in the high demand season, some exemption/relaxation in PPRA rules will be available for SOEs.

LPG industry officials say that all efforts are tilted towards imports and how to further increase margins for the importers at the cost of local industry.

They are of the view that LPG is a poor man’s fuel and it is essential to keep prices and taxes at reasonable and affordable levels but at the same time the revised LPG policy does not reflect this acknowledgement.

Despite having submitted several requests to the relevant ministry that the local industry is suffering due to the government’s biased policies, the revised draft facilitates the importers.

In the revised draft, just to facilitate the importers, the local prices, which were previously linked with the international Contract Price (CP) that is the highest benchmark in the world, have now been changed to the landed C&F prices that means a further increase of $50-80 over and above the CP.

On the other hand, to further facilitate the importers, the recommendation of giving the advance income tax waiver on LPG imports is not justified/required as it is already adjustable and any further waiver will result in a significant reduction in government revenues and will also open avenues of tax evasion.

The local industry has urged the prime minister to initiate an inquiry into the matter as all draft summaries are targeted to provide further incentives to the importers at the cost of billions of rupees worth of losses to the local producers, which are 95% government-owned.

Published in The Express Tribune, August 5th, 2021.

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