Tax disparity favours LPG importers

Regulator recommends govt to impose uniform taxes on local, imported fuel

ISLAMABAD:

The Oil and Gas Regulatory Authority (Ogra) has pointed to huge favours being given to liquefied petroleum gas (LPG) importers in the wake of tax disparity and suggested to the government to impose uniform taxes on the local LPG producers and fuel importers.

Responding to a letter of the Petroleum Division regarding increase in the petroleum levy rate to more than double, Ogra underscored the need that the government should opt for uniform taxes.

“Distortion in duties and taxes on the locally produced and imported LPG is providing undue benefits to the importers,” the oil and gas industry regulator said.

In the budget for FY23 announced in the second week of June, the government increased the petroleum levy on locally produced LPG from Rs4,569 per ton to Rs10,111 per ton, putting an additional burden of Rs8 billion on the
domestic producers.

Though the major LPG producers are state-run companies, like Pakistan Petroleum Limited (PPL) and Oil and Gas Development Company (OGDC), they have suffered a lot due to the influence of LPG importers over government policies and the additional earnings of billions of rupees made by the importers at the cost of national exchequer.

The government of Pakistan is a majority shareholder in the state-owned LPG producers and has borne heavy losses due to the policies that favoured the importers.

Owing to a huge tax disparity, the LPG importers are making billions on sales to the poor consumers and are depriving the national exchequer of revenues.

The government imposed petroleum levy on the locally produced LPG apparently to provide a favourable environment for the importers.

On the other hand, an LPG plant named Jamshoro Joint Venture Limited (JJVL) has been shut for the past couple of years. This has led to an increase in LPG imports, heaping pressure on the foreign exchange reserves.

While quoting the July price of LPG, Ogra pointed out that the LPG producers were giving Rs4,689 per ton in petroleum levy whereas the importers were paying no such levy.

Moreover, the producers were paying sales tax of Rs32,027 per ton whereas the importers were paying Rs18,373 per ton.

As a result, the price of locally produced LPG stood at Rs220,421 per ton whereas the price of imported LPG was Rs202,098 per ton.

To calculate this, Ogra took an equal Saudi Aramco contract price for both local ex-plant/ refinery LPG and ex-port imported LPG.

In a letter to the Petroleum Division, Ogra said the market was led by the locally produced LPG as well as imports in almost equal proportion. However, it pointed out, there was already imbalance in the bulk price of imported and locally produced LPG due to taxes and duties.

Keeping the situation in view, Ogra was of the opinion that all taxes and duties on locally produced as well as imported LPG should be the same as both competed with each other in the
same market.

Besides, the maximum consumer price is determined by Ogra, though for the local LPG production only, which also becomes the consumer pricing benchmark.

“The disparity in taxes and duties causes market distortion and is a source of undue benefit for the imported LPG,” Ogra said.

Published in The Express Tribune, July 17^th, 2022.

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