The federal finance ministry under the immense pressure of the IMF and also for meeting its individual targets keeps on encroaching provincial tax domains and is not discriminating the tax collection under various heads based on respective purposes. Thats absurd, instead of exhibiting role of the big brother and adopting holistic approach, the sole objective appears to be thinning the consolidated fiscal deficit no matter what it takes. The problem becomes compounded when the government is eyeing to run an expansionary fiscal policy in FY17 and FY18 to prepare grounds for 2018 elections.
The latest fiasco is on allocation of funds for laying north south gas pipeline which is to be used for supply of imported LNG to the power plants in north which are to be completed by 2017 end. In the ECC meeting last week lead by Ishaq Dar, it was decided to collect Rs100 billion from consumers for construction of the gas pipeline. An OGRA official, rightly so, objected, and asked the federal finance ministry to allocate the funds from GIDC collection.
As the name suggests, Gas Infrastructure Development Cess (GIDC) was introduced in 2011 to collect taxes on gas development projects like Iran-Pakistan-India (IPI) pipeline project, Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline project, and infrastructural projects like construction of an LNG terminal, pipelines and LPG supply enhancement project.
Both IPI and TAPI are long shots and no financing plan has yet surfaced on either of these projects while the government had collected Rs146.5 billion under GIDC till September 15. Initially the federal government struggled in GIDC collection due to host of issues while the collection is streamlined in the last two quarters as the collection was Rs38 billion and Rs24 billion in 4QFY15 and 1QFY16 respectively. Now onwards, its expected to have a collection of around Rs25 billion each quarter and by this virtue, the cumulative collection would have reached Rs175-180 billion by now.
The number is more than enough to finance the north south pipeline. But the finance ministry is reluctant to provide that fund for its said purpose and rather using the money to plug in the fiscal deficit to make headlines. Why should the consumers pay twice for the same development project? And the GIDC was supposed to be used for imported LNG terminal as well. On the flip, the terminal operating company (Engro) is charging $272K every day ($0.66 per mmbtu for handling 400 mmcfd). The terminal charges are incorporated in the imported LNG gas tariff which will be eventually passed on to the end consumers.
The GIDC is currently being imposed on all but domestic consumers - its being imposed on fertilizers which the fertilizer producing companies are passing on to farmers; its on CNG and industries as well. Everyone will pass it on to the consumers and now the consumers may pay additional tax for north south gas pipeline.
In effect the GIDC is just for the name a development cess and its practically there to fill the fiscal financing needs. All the gas development projects would have independent financing. In addition to that, GIDC is a federal subject and central government doesn't have to share it with provinces while any tax on gas is a provincial subject.
The GIDC was controversial since inception because of its inherit encroachment on provincial tax domains. GIDC after being challenged in the Peshawar High Court, was termed illegal due to the way it was imposed by the apex court last year. The Supreme Court declared the gas infrastructure development cess as a fee and not a tax.
Hence the federal government won the plea for the sake of development fee but the irony is that not a single penny out of Rs150 plus billion collected has been spent on any gas related infrastructure project. Isn't it beautiful accounting?