LPG producers seek end to tax disparity

Say local companies have stopped investment due to favour given to importers

Zafar Bhutta August 28, 2022
State-run companies said that no new LPG extraction plant would be set up in future if pro-importer policies continue to re-main in place. PHOTO: FILE


A lobbying group of domestic oil and gas explorers has again approached the government, complaining that importers of liquefied petroleum gas (LPG) are pocketing billions of rupees due to tax waivers granted by the previous Pakistan Tehreek-e-Insaf (PTI) administration.

The previous government had issued a Statutory Regulatory Order (SRO) that exempted LPG imports from regulatory duty and slashed general sales tax (GST). With the relief in duty, the LPG importers are believed to have got a windfall of around Rs20 billion.

This has not only hit the national exchequer in terms of lost duty and taxes, but also distorted the LPG policy for state-run energy giants like Oil and Gas Development Company Limited (OGDCL) and Pakistan Petroleum Limited (PPL). Government of Pakistan is a major shareholder in these companies.

During the tenure of previous government, Jamshoro Joint Venture Limited’s (JJVL) LPG plant, which accounted for 15% of local production, was also shut down. It provided an opportunity to the LPG importers to import more and make
extra profit.

At a time when the country is facing dollar shortage, the LPG importers are milking money due to the favourable environment provided to it, say local industry players.

LPG is considered a fuel for the poor, especially those living in far-off areas.

The current government, led by Pakistan Muslim League-Nawaz (PML-N), has doubled the petroleum levy on locally produced LPG to over Rs10,000 per ton in the budget for current fiscal year, adding to the miseries of fuel producers. However, it has not yet been implemented.

In the backdrop of tax disparity, the LPG producers have asked the government to end the anomaly.

Industry officials argued that the establishment of an LPG plant required investment of around $30 to $40 million, but the producers had stopped injecting capital into the installation of new plants owing to the favour given to the importers.

They were of the view that the current situation would result in more LPG imports and extra burden on the foreign currency reserves, which were already shrinking while the government was struggling to get
IMF funding.

In a letter sent to the director general petroleum concession (DGPC), Pakistan Petroleum Exploration and Production Companies Association (PPEPCA) has called for providing a level playing field for the LPG producers and importers.

It sought an end to the disparity in taxes as the LPG producers were paying the petroleum levy whereas LPG import had
been exempted from the regulatory duty.

PPEPCA has been sending letters to the government since 2020 but to no avail. Companies are concerned that the necessary action to alleviate the tax disparity has not been initiated, neither by the Ministry of Finance nor the Federal Board of Revenue (FBR).

“In view of the above, we would once again request your intervention in the matter to address this anomaly existing between two different taxation regimes applicable to local and imported LPG,” Mazhar Farooq, Secretary General PPEPCA, said in the letter.

Published in The Express Tribune, August 28th, 2022.

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