PetroMin seeks tax equalisation for LPG

The move could help private firms such as RIL and Hyderabad-based Super Gas to enter the mainstream LPG business

With non-subsidised liquefied petroleum gas (LPG) for domestic use becoming part of cooking gas sales, private marketers have sensed an opportunity.

The ministry of petroleum and natural gas is seeking equalisation of duty for commercial LPG. This could help private companies such as Reliance Industries and Hyderabad-based Super Gas, which operate as parallel marketers, to enter the mainstream LPG business.

A senior government official told Business Standard the petroleum ministry had asked its finance counterpart to equalise excise and Customs duties for the 15 million tonnes (mt) of LPG sold in the country. Currently, government-controlled Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPC) and Hindustan Petroleum Corporation (HPC) sell 14 mt of LPG for domestic cooking purposes. Though this doesn’t attract tax, the remaining quantity attracts excise and Customs duties.

The price differential between LPG sold by government companies and private ones isn’t due to subsidy alone. About Rs 96 is added to the price, owing to excise and Customs duties.

Sale of LPG by private companies draws five per cent Customs duty for imported LPG (Rs 33 a cylinder) and eight per cent excise duty on sales to consumers (other than those by IOC/BPC/HPC), which amounts to Rs 63 a cylinder. “Though the government has no intention of extending subsidy dole to non-government companies, if the revenue collected is equally spread across volumes, there would be less diversion and sales of commercial LPG could also increase,” the official said.

Equalisation would spread tax collection across all LPG, which would mean a marginal increase in the price of domestic LPG sold by the three oil marketing companies (about 95 per cent of total sales). For the remaining LPG, it would reduce the price significantly.

While Reliance Industries has about a million customers in rural areas of Gujarat, Maharashtra, Rajasthan and Madhya Pradesh, Super Gas has an extensive gas agency network in Andhra Pradesh, Gujarat, Maharashtra and Tamil Nadu.

The ‘non-controlled, free LPG’ can be supplied by anyone, from any source and for any end-use.

“With the success of the direct benefits scheme in the subsidised sector, there is no reason to exclude the private sector from any market, and all pricing and distribution restrictions can be withdrawn,” said an executive of a private company.

Investment needs for the expansion of the LPG market stood at about Rs 3,850 crore for every million tonnes sold a year, the executive said, adding it would be worthwhile for the government to attract private investment to develop the market by removing restrictions in sourcing and distribution and providing a level playing field in the packed and bulk LPG businesses.

The LPG market is seeing policy changes, with government companies now selling about 100 million domestic gas cylinders at market rates, after a quota of nine cylinders is exhausted for a single connection.

Through the Direct Benefits Transfer programme, the consumer pays the market price to oil marketing companies and gets a credit for subsidy in his account, as long as it is within the quota of nine cylinders.

LEVEL PLAYING GROUND MOOTED

* According to a senior government official, the petroleum ministry has asked the finance ministry to equalise excise and Customs duties for the 15 mt of LPG sold in the country

* Government-controlled Indian Oil, Bharat Petroleum and Hindustan Petroleum sell 14 mt of LPG for domestic cooking purposes

* Though this doesn’t attract tax, the remaining quantity attracts excise and Customs duties

* Equalisation would spread tax collection across all LPG, which would mean a marginal increase in the price of domestic LPG sold by the three oil marketing companies