ECC takes up today Rs40bn tax proposals

Published November 30, 2015
Finance Minister Ishaq Dar chairs a meeting of the ECC.—APP/File
Finance Minister Ishaq Dar chairs a meeting of the ECC.—APP/File

ISLAMABAD: The Economic Coordination Committee of the cabinet is expected to clear on Monday Rs40 billion additional tax measures and consider a $16bn agreement for import of liquefied natural gas from Qatar.

The ECC meeting was scheduled for Friday, but was postponed until Monday to ward off any negative effects of additional taxes on local government elections in Punjab and Sindh.

The meeting, to be presided over by Finance Minister Ishaq Dar will, among other issues, impose regulatory duty on import of maize and maintain minimum guaranteed price of wheat at Rs1,300 per 40 kg.

Also read: New taxes to limit use of luxury items: Dar

The committee had deferred last week the LNG Sale and Purchase Agreement and Side Letter and LNG pricing formula after intense debate and differences of opinion among several ministers over legal issues, including if a commercial deal among two independent and listed companies of two countries could be within the ECC jurisdiction.

Most of the members believed that the ECC could not sanction the proposed agreement because it was not a government-to-government deal. Second, import of LNG by a listed company involving public money for use by the public at large should go through tendering as required by procurement rules.

Sources said that while taking up again the proposed agreement that involves binding LNG prices linked to around 13.7 per cent of Brent for the first 10 years and then renegotiable for another five years, the committee would have to see it was prudent to approve it when LNG prices were on a sliding scale internationally because of oversupply.

This is important given the fact that India had recently broken a long-term LNG contract with Qatar’s RasGas because of its high price and was even able to get a $1.5bn penalty for this violation waived by Qatar which wanted to continue supplies even at a lower price that was almost half of what had been guaranteed.

An official said Pakistan had secured ‘very good’ price for LNG with at 13.7-13.8pc of crude was around $6.5 per MMBTU (Million British Thermal Units) but binding it for 10 years despite projections for further LNG price cuts in the international market would have to be a bold political decision for the government keeping in mind domestic gas shortages.

Goldman Sachs group lowered its 2016 spot price forecast for LNG in Japan and Korea to $6.13 per MMBTU and further drop to $5.19 per MMBTU in 2018 and $4.75 per MMBTU in 2019 in view of US LNG exports in January and already increasing supplies from Australia.

But more problematic were the revised terms of the LNG Sale and Purchase Agreement between QatarGas and Pakistan State Oil that transferred additional liabilities towards Pakistan consumers, including 100pc take or pay clause on LNG buyer and only 20pc liability on the supplier in case of failure to adhere to committed specifications.

ADDITIONAL TAXES: The ECC will also approve a notification for an increase in taxes and duties on more than 280 items to meet around Rs40bn shortfall in the revenue target in the first quarter of the current financial year to comply with a pre-condition of the IMF for disbursement of the next tranche of about $502 million.

Under the IMF pre-condition, the government has to notify measures for generation of Rs40bn by Nov 30.

DUTY ON MAIZE IMPORT: The ministry of national food security and research has requested the ECC to impose 40pc regulatory duty on import of maize to discourage imports because of falling international prices.

The ministry said the prices of all foodgrains had declined substantially in the world market – 40pc since May 2011 according to the Food and Agricultural Organisation of the UN. “Because of higher cost of inputs, the prices of foodgrains in the domestic market are still higher,” the ministry reported as maize price stood at Rs23,100 per ton against international price of Rs17,850 per ton.

While this could be a boon for local consumers, the agriculture sector could have a negative impact. As the government had already imposed 40pc regulatory duty on wheat import to deprive the domestic consumers of international price benefit, a similar duty was now required for maize import.

WHEAT PRICE: The ministry of food security has proposed to maintain the minimum guaranteed price of Rs1,300 per 40 kg for wheat in view of expected oversupply in the international market.

It said the International Grains Council, London, had anticipated the world wheat production to rise to 721m tons in 2014-15 from 655m tons in 2012-13 and consequent increase in wheat stocks from 170m tons in 2012-13 to 201m tons in 2014-15.

“It means the prices of wheat in the international market would continue to remain depressed. The current wheat stock is around 8.168m tons.” This calls for no change in guaranteed price for the 2015-16 crop.

Published in Dawn, November 30th, 2015

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