Raise in GST: Federal government deprives provinces of massive revenue

The federal government has reportedly deprived the provinces of billions of rupee revenue by increasing General Sales Tax (GST) on industrial sector gas by 96 per cent, instead of increasing Excise Duty which is exclusively the right of the provinces. The Economic Co-ordination Committee (ECC) of the Cabinet in its meeting held on November 25, 2016 approved a reduction in gas sale prices for the industry by Rs 200 per MMTBU to Rs 400 per MMBTU from Rs 600 per MMTBU.
However, the ECC also decided to increase the amount of GST from Rs 102 per MMTBU to Rs 200 per MMTBU which constitutes an over 96 percent increase. With decrease in sale price, the total price has been reduced by only Rs 102 per MMBTU to Rs 600 per MMBTU from Rs 702 per MMTBU.
Analysts are of the view that government made a clever move to increase GST so that the collection of GST should remain with the federal kitty, adding in case of increase in Excise Duty, the revenue would have been the exclusive right of the provinces. Both gas utility companies, viz Sui Northern Gas Pipeline Limited (SNGPL) and Sui Southern Gas Company Limited (SSGCL), are engaged in gas purchase from Exploration and Production (E&P) companies and transmission, distribution and sale to various categories of consumers. They are operating on cost plus return on assets formula under licences from Oil and Gas Regulatory Authority (OGRA).
The Section 8(1) of the Ogra Ordinance 2002 empowers OGRA to determine the estimated revenue requirements of its licences. The sources said the OGRA has determined the estimated net revenue requirements for SNGPL for financial year 2016-17 and they were Rs 213 .806 billion of which cost of gas was Rs 128.623 billion, impact of Sui field, Rs 6 billion, UFG disallowance, Rs 7.044 billion, T&D cost, Rs 21.892 billion, depreciation, Rs 17.238 billion, WPPF, Rs 1.138 billion, RoA, Rs 19.063 billion, and surplus/shortfall of prior year Rs 51.243 billion. This shows that total revenue requirement of the company was Rs 238.162 billion but with other less income of Rs 24.356 billion, net revenue requirement was Rs 213.806 billion. However, as the revenue at current sale price was Rs 177.049 billion, the gas utility was facing a shortfall of Rs 36.757 billion.
The net revenue requirement of SSGCL was Rs 150.767 billion in 2016-17, of which the cost of gas was Rs 133.285 billion, impact of Sui field Rs 6 billion, UFG disallowance was Rs 13.826 billion, T&D cost, Rs 14.515 billion, depreciation, Rs 5.708 billion, WPPF, Rs 432 million, RoA, Rs 9.718 billion, LPG air mix, Rs 359 million, surplus/shortfall for prior year, Rs 6.5 billion, which shows that total revenue requirement was 162.691 billion. With less income of Rs 11.924 billion, the total net revenue requirements was Rs 150.767 billion which shows that revenue at current sale price would be Rs 199.764 billion. The new deficit/ surplus of SSGCL would be Rs 48.997 billion. The sources said Rs 25 billion shortfall was based on the proposal to revise Sui field wellhead gas price. The shortfall of prior year in SNGPL is reflecting the estimated impact of not increasing the gas sale prices due to various reasons including litigation in Lahore High Court, some delays in revenue determinations by OGRA due to non-completion of quorum and other socio-economic considerations. Even without any increase in gas sale prices, the revenue shortfall of Rs 51 billion is expected to decrease to Rs 37 billion by the end of current fiscal year.
The reduction in oil prices in international market is resulting in recoupment of revenue shortfall of prior years and if the oil prices remain stable at present level, the revenue loss would be further recovered in coming year(s). According to prevalent gas price, the price of gas was Rs 110 per MMBTU for domestic consumers using 100m3 and Rs 220 per MMTBU using 300m3 whereas tariff for consumers who use above 300m3 was Rs 600 per MMTBU.
The price of fertiliser-feed (old) was Rs 123 per MMTBU, besides Rs 300 GIDC, totalling it to Rs 423 per MMTBU whereas rate of fertiliser-feed (new) was Rs 73 per MMBTU, plus Rs 300 GIDC, totalling it to Rs 373 per MMBTU. The price of fertiliser fuel was Rs 600 per MMTBU and with Rs 150 GIDC, total price is Rs 750 per MMBTU.
The price of gas for power sector was Rs 613 per MMTBU and with Rs 100 GIDC, total price was Rs 713 per MMBTU, general industry's tariff was Rs 700 per MMBTU, Rs 100 GIDC (total Rs 700 per MMBTU), captive power plants Rs 600 per MMBTU plus Rs 200 GIDC (total 800 per MMBTU), cement, Rs 750 per MMTBU, CNG Rs 700 per MMBTU plus Rs 263 GIDC (total Rs 963 per MMBTU) and commercial Rs 700 per MMBTU.
The petroleum ministry was of the view that in the current situation of reduced oil price, there was a strong justification for providing some relief to the industrial sector which was becoming non-competitive in international market resulting in loss of exports earning.
Accordingly, the Petroleum Ministry worked out a proposal on following lines;(i) gas sale price for industrial sector and captive power may be decreased from Rs 600 per MMBTU to Rs 400 per MMBTU; (ii) in accordance with the fertiliser policy 2001, the industrial sector gas sale price would be applicable to fertiliser sector (fuel stock); (iii) and present GST at 17 per cent is Rs 102 MMBTU may be increased to Rs 200 per MMBTU.
The Punjab-based textile industrialists met Chief Minister Punjab Mian Shahbaz Sharif and conveyed their concerns on current decrease in gas tariff for the industry, saying that Punjab-based industry was using RLNG which was costlier than domestically produced natural gas.
"We have conveyed our concerns to Mian Shahbaz Sharif. We want a level playing field for the industry across the country so that Punjab-based industry should also compete with textile industry in gas surplus provinces," said one of the representatives of textile sector on condition of anonymity. He further stated that the export-oriented industry is waiting for the much talked-about package. The sources said that Prime Minister Nawaz Sharif is expected to preside over a meeting on energy in Lahore on Saturday (today).