Govt plans tax concessions for LPG storage, production

Published July 12, 2021
A man carries an LPG cylinder at a gas distribution centre in Peshawar. — Reuters/File
A man carries an LPG cylinder at a gas distribution centre in Peshawar. — Reuters/File

ISLAMABAD: Amid criticism from stakeholders over 'poor' consultative process, the government on Sunday indicated tax and duty concessions for storage and enhanced production of liquefied petroleum gas (LPG) with relaxations from procurement rules to the public sector entities to enable them to compete with private sector in import and sale of LPG.

At a consultative session on proposed new LPG policy, various local stakeholders, including those in public and private sectors, bemoaned the ‘haste’ in which they were called to the petroleum division on a holiday on a short notice and said it created an atmosphere of suspicion.

Some participants opined that the proposed policy appeared to be putting local producers and their marketing and distribution paraphernalia at a disadvantage when compared with importers and wondered why draft of the policy had not been shared with the stakeholders.

Most participants insisted it was important for the policy to be transparent and successful that concerns of the local industry were addressed and level playing field was provided to all. The concerns pertain to linking the price of local LPG with international contract prices but building no mechanism that ensures no import of LPG from some banned sources which can otherwise lead to international ramifications.

Stakeholders assail ‘poor’ consultative process on new policy

The public sector companies like the Oil and Gas Development Company Limited (OGDCL) and the Pakistan Petroleum Limited (PPL) reported that it would be a tough call to hold auction for LPG on a monthly basis.

Participants pointed out that the proposed policy did not take into account impact of uncontrolled imports on local oil refineries which could seriously affect the petroleum supply chain as had previously happened with Parco and Byco when excessive imports had curtailed their operations. Therefore, the imports should be limited to the extent of anticipated shortage of LPG.

Some of the key stakeholders which joined the session physically or through video link included the OGDCL, PPL, Engro, Jamshoro Joint Venture and Oil and Gas Regulatory Authority besides the associations of LPG marketing companies and distributors.

The representatives of LPG distributors said the proposed monthly ceiling price of LPG equal to the landed cost for imports through sea based Saudi contract price would make it difficult for local supply chain to compete in a market which would be dominated by importers, enjoying the added incentive of zero advance income tax on imports.

They said the policy makers had wrongly assumed in the proposed policy that 50 per cent of local demand was met by LPG imports as the official data showed 75pc demand was met by local product and roughly 25pc by the imports.

The draft policy proposes that under the prevailing market conditions, a reasonable price ceiling at producer level will be essential to ensure a fair price and competition between importers and local producers. Accordingly, the policy envisages that a reasonable ceiling price will be set at producer level, to reflect the import parity price whereas consumer price will be de-regulated.

The policy also promises fiscal incentives to increase indigenous production, build storages and ensure ‘competitive imports’. For enhancing local production, the policy envisages zero import duty and taxes on plants and machinery for LPG production plants and 10-year tax holiday to the producers after the start of commercial productions.

Likewise, it entails zero import duty and taxes on plants and machinery for LPG storage and bottling plants. Also, it proposes zero advance income tax on imports and 10pc general sales tax on imported and locally produced LPG.

To facilitate the state-owned entities to compete in changing market conditions and prices in the international market, special exemptions or relaxation from Public Procurement Regulatory Authority requirements (rules 13 and 35 that require certain time limits in tendering and contract award process) will be provided enabling their procurement of LPG at competitive prices within least possible time to meet urgent LPG requirement.

Published in Dawn, July 12th, 2021

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