New LPG Policy Likely to Benefit Importers

An incentive package for the import of liquefied petroleum gas (LPG) is in the works for the government, to boost supplies, reported Express Tribune.

The policy may allow tax exemptions for the benefit of importers. This is usually how the import support policies are drafted whereby there are favorable policies like tax exemption and incentives to domestic producers to enhance production. This policy will include several incentives for LPG imports.

This policy is likely to be approved next month, and once put into practice, it will improve LPG supply in the wake of current shipment orders and proposed exemption from withholding tax.

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If the said policy is put into practice, the current withholding tax of 5.5 percent charged on the import of LPG, will likely be withdrawn. LPG imports have once before been provided with such incentives approximately two years ago whereby the regulatory duty was abolished, and a preferential sales tax system was introduced, where tax was slashed from 17 percent to 10 percent.

This will likely create distortions in the market with the likelihood that most companies will prefer the import of LPG instead of purchasing from domestic producers as import often is cheaper.

Considering that the new policy has not been well received by the domestic producers, they believe that the last time such incentives were in place, the LPG importing companies reaped benefits in billions of rupees without passing them off to the consumers.

The management of a large refinery (partially owned by the Government of Pakistan) has also written a letter to the Planning Commission regarding this matter.

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Some members of the Petroleum Exploration and Production Companies Association (PEPCA) are also planning to file an application with the anti-corruption watchdog. They are contemplating approaching the prime minister to request the formation of a commission to probe into the new potential policy’s measures providing undue benefits to the LPG importers, the newspaper report said.

Pakistan’s total LPG consumption is approximately 13 million tons per annum, out of which 7.5 million tons are produced locally while the remaining demand is serviced through imports.