A MESSY situation is developing in the gas sector. The previous government had introduced a ‘Gas Infrastructure Development Cess’ to be imposed on all consumers except for domestic.

A list of rates applicable to each category of consumer — from fertiliser to CNG to industry — was attached to the original legislation, which ultimately had to be passed via the finance bill. The idea at the time was to use the cess to raise funds for building additional pipeline capacity, particularly for imported gas. In its first year of operation, the amount of money to be raised from the cess was budgeted as Rs8bn.

This rose to Rs30bn subsequently. Today, the amount to be raised under this cess has risen further to Rs145bn, a staggering sum, making the cess comparable to some of the largest non-tax revenue heads in the government’s finances. From the very beginning, the cess became a controversial enterprise, thus making it necessary to seek its passage into law via the finance bill, where it did not need to be debated in committee.

More recently, the Peshawar High Court has found the cess to be illegal, and ordered the government to reimburse all money charged under it. The matter went to the Supreme Court, which found that “the cess could not have been introduced through a money bill” and upheld the judgement of the Peshawar High Court.

The court’s order has hit the government hard. An option being explored is to seek an act of parliament to provide the cess with legal cover, while using a presidential ordinance in the interim period to keep the revenues coming. If the ordinance stands up to legal challenge, and if the government is successful in arranging support in parliament for the cess, the matter may yet reach smooth closure. But should the plan hit a snag, the blow to government finances could be substantial.

A snag could come in the form of parliamentary parties insisting that the cess be classified as a tax, which would entitle provincial governments to their share in it under the NFC Award. In substantial measure, the mess is the result of failure in gas price deregulation. Reforms in gas pricing are important to avoid landing up in difficult situations of this sort. If the government draws the right lessons from the whole affair, perhaps the headaches created would have been worth it after all.

Published in Dawn, September 25th, 2014