Pricier LPG likely as govt mulls cutting duty benefits

Liquefied Petroleum Gas (LPG) cylinder manufacturers, in the ensuing budget, are likely looking at increased duty on raw material imports and a possible addition of 15% VAT, as part of the government's move to curtail certain industry benefits aiming to boost revenue.

The local cylinder manufacturers will also see the existing 5% VAT raised to 7.5% at the production stage, according to finance ministry sources.

The move, limiting the benefit to import at reduced rates, which officials say the sector has long been enjoying and by now has become self-sufficient, will in effect bite into people's wallets, feared industry stakeholders.

With increased import duty and added VAT on cylinder raw materials, the price of LPG cylinders may increase at the consumer level, industry insiders say.

The reduced VAT rate of 7.5% (on iron and steel) for the local manufacturers, however, may stay in place for one year.

Currently, the entrepreneurs of this sector pay 3% customs duty on the import of steel sheet and welding wire, which are key raw materials for LPG cylinders. Besides, the sector at present enjoys VAT exemption. And, general importers have to pay 5% customs duty and 15% VAT.

In other words, LPG producers get about 17% tax benefit compared to normal importers for importing the two main raw materials.

According to ministry sources, linked with the budget proposal outlines, steel sheet and welding wire may be taken out of the statutory regulatory order (SRO) – meaning the items will be subject to normal duty and VAT rates.

"Simply put – if our benefits are cut by 7%, cylinder price at the consumer level will soar by the same percentage" a senior official of a leading LPG cylinder manufacturer told The Business Standard.

"Currently, our production cost per cylinder is some Tk2,600, which is sold at a subsidised price of Tk1,000. Curtailed tax benefit will mean added burden on consumers," the official said requesting anonymity.

For the past few years, the government has encouraged using LPG cylinders to reduce gas supply by the Titas Gas authority. The reduced tax benefit came as part of this and investment to locally produce LPG cylinders kept pouring in.

Import duty on LPG cylinder raw materials was first introduced for local entrepreneurs in 2015. 

Some experts also think lifting the benefits in the current economic reality will not be logical.

"When these facilities were given, companies were afforded too much protection, contrary to the World Trade Organization (WTO) regulations. It was not logical then and withdrawing the benefits amid economic crisis under IMF pressure will not be logical either," Farid Uddin, former NBR member of customs policy told The Business Standard.

"If this results in a cylinder price hike, consumers, already squeezed under inflation will be handed a fresh burden. Besides, the confidence of investors in this sector will decline," he added.

Since 2015, when the industry benefits came into effect, LPG cylinder imports gradually reduced. Currently local cylinder producers are successfully meeting the market's demand, which per year ranges from 24-30 lakh.

Other than the widely known Bashundhara LP Gas, Omera LP Gas and EnergyPac some other companies are also manufacturing LPG cylinders.