CNG stations in Sindh face prospect of gas disconnection

Involved in tussle with FBR, want to negotiate sales tax controversy

KARACHI: Hundreds of CNG filling stations in Sindh face the prospect of gas disconnection over a sales tax controversy, which has pitted station owners against the country’s tax authority, the Federal Board of Revenue (FBR).

Tax officials are pushing 600 CNG proprietors to clear tax arrears of around Rs4 billion by November 28 that have not been paid due to a lengthy legal battle between the two parties.



The arrears pertain to sales tax not paid between April 2014 and November 2015.

“We have tried speaking to everyone in FBR but they don’t want to listen,” said All Pakistan CNG Association’s Sindh chapter Chairman Shabbir Sulemanjee. “And finance minister is too busy. I am not sure what will happen.” The roots of the issue lie in a Sales Tax Amendment Ordinance, which was issued through a Presidential Order in March 2013.

It allowed FBR to collect 17% sales tax on the value of gas, which the Sui Southern Gas Company (SSGC) sells to CNG stations.



But CNG station owners approached the court. “It was not feasible for us to agree because the effective sales tax was actually 34%,” said Sulemanjee, explaining that CNG stations were not allowed any input adjustments.

Unable to deal with mushrooming growth of CNG stations across the country after a liberalised gas policy was adopted in early 2000s, the FBR has struggled to generate enough revenue from the sector. CNG is generally considered a good cash-flow business where cash from customers is received immediately but payment to utilities is made after 30 days.

FBR first increased sales tax for CNG stations back in 2008. The case went to court, dragged on for years and then a judgment came against tax authorities. The Presidential order of 2013 was issued to counter the after-effect.



CNG station owners say the government has capped retail price, making it difficult for them to recover cost.

“A CNG station business needs capital investment of around Rs100 million. We would want a return-on-investment (ROI) of at least 15%,” Sulemanjee said. “But how do you expect us to earn that when the retail price of CNG is Rs67.5 per kg and our cost is more than that.”

The association has threatened to go on strike if tax officials do not come to the negotiating table.

Published in The Express Tribune, November 25^th, 2015.

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