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Tax disparity favours LPG importers

Tax disparity favours LPG importers

Tax disparity favours LPG importers

Tax disparity favours LPG importers (credits:google)

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  • The Oil and Gas Regulatory Authority (Ogra) has advised that the government impose uniform taxes on the local LPG producers and fuel importers.
  • Ogra cited significant favours being granted to liquefied petroleum gas (LPG) importers as a result of tax discrepancy.
  • The burden on the foreign exchange reserves has increased as a result of LPG imports.
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The Oil and Gas Regulatory Authority (Ogra) has advised that the government impose uniform taxes on the local LPG producers and fuel importers in light of the significant favours being granted to liquefied petroleum gas (LPG) importers as a result of tax discrepancy.

Ogra emphasised the necessity of the government choosing uniform taxes in response to a letter from the Petroleum Division suggesting an increase in the petroleum levy rate to more than double.

The oil and gas sector regulator said that “distortion in levies and taxes on the locally produced and imported LPG is providing excessive benefits to the importers.”

The government hiked the petroleum levy on locally manufactured LPG from Rs4,569 per tonne to Rs10,111 per tonne in the budget for FY23, which was unveiled in the second week of June. This increased tax burdened domestic producers by Rs8 billion.

Despite the fact that the major LPG producers, such as Pakistan Petroleum Limited (PPL) and Oil and Gas Development Company (OGDC), are state-run businesses, they have suffered greatly as a result of the influence that LPG importers have over government policies and the additional billions of rupees that these businesses have earned at the expense of the national exchequer.

Because to the policies that favoured importers, the Pakistani government, which holds a majority stake in the state-owned LPG manufacturers, has suffered significant losses.

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Due to a significant tax differential, LPG importers profit enormously from sales to low-income customers while depriving the national exchequer of funds.

According to reports, the government placed a fuel tax on domestically manufactured LPG to create a welcoming climate for importers.

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On the other side, Jamshoro Joint Venture Limited (JJVL), an LPG factory, has been closed for the past few years. The burden on the foreign exchange reserves has increased as a result of the rise in LPG imports.

Ogra quoted the price of LPG for July but noted that LPG producers were paying Rs4,689 per tonne in petroleum levy while importers were not.

Additionally, although imports paid Rs18,373 per tonne in sales tax, manufacturers paid Rs32,027 per tonne.

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As a result, the cost of domestically produced LPG was Rs220,421 per tonne, compared to Rs202,098 for imported LPG.

Ogra used an equal Saudi Aramco contract price for both locally produced ex-plant/refinery LPG and imported LPG when calculating this.

Ogra claimed in a letter to the Petroleum Division that imports and locally manufactured LPG have approximately equal market share. However, it emphasised that due to taxes and levies, there was already an imbalance in the wholesale pricing of imported and domestically produced LPG.

Considering the circumstances, Ogra believed that all taxes and levies on LPG, whether it was produced locally or imported, should be the same because they both competed in the same market.

Additionally, Ogra establishes the maximum consumer price, however only for locally produced LPG, which also serves as the baseline for consumer pricing.

According to Ogra, the gap in taxes and levies distorts the market and gives imported LPG an unfair advantage.

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