By Adewale Sanyaolu
A fresh disagreement is brewing over the decision of the Federal Government to re-introduce a 7.5 Value Added Tax (VAT) on imported Liquefied Natural Gas(LPG), popularly known as cooking gas.
The Department of Petroleum Resources (DPR), in defending the position of the Federal Government over the 7.5 per cent VAT on LPG, said the move would further encourage fresh investment in upstream exploration and production.
DPR Director, Mr. Sarki Anwalu, while addressing the media on the first anniversary of the launch of gas transportation network code in Lagos at the weekend, said the absence of VAT on imported LPG was a double jeopardy for government.
He argued that, on one hand, government was losing revenue from non-collection of VAT, while, on another level, it was discouraging local investment in the LPG sector.
‘‘For me personally, I won’t like the country to be importing LPG because this is a country with a potential of over 600 trillion cubic feet of gas. We have proven reserves of gas in excess of 206 trillion cubic feet of gas.
So if we allow LPG imports without restriction, that means we are not giving opportunities for upstream investors to drill and get this gas, thereby creating jobs and providing more revenue to government coffers.’’
Already, he said those restrictions put in place by government is already generating results as there are currently many proposals being received by DPR with the investment profile in the range of about $500 million coming on stream. But, the Nigerian Liquefied Petroleum Marketers Gas Association (NALPGAM) said the re-introduction of VAT on LPG, which has been on exemption and gazetted since 2018, would lead to a major setback to the Federal Government’s effort to boost cooking gas penetration as encapsulated in its decade of gas 2020-2030. The Executive Secretary of NALPGAM, Mr. Essien Bassey, stated this in his presentation at the Platforms Africa E-Discourse series held at the weekend.
Bassey maintained that the development has led to an upswing in the price of cooking gas for some time now because there has been increases in the price marketers buy the product from the depots and terminals as a result of the VAT introduction.
He explained that in early 2020, a 20 metric ton truck of LPG sold for N3.4m, by Dec 2020, it had gone up to N5.4m and N5.6m in Jan 2021, adding that as at today, a 20 metric ton truck sells for N8 million.
‘‘The average cost of a 12.5 kg cylinder of gas sells for about N6,000 and if the situation persist till December 2021, a 12.5kg cylinder of gas may sell for N10,000 or more.
NALPGAM has made so much advocacy to draw the attention of the government to address the factors that are responsible for the price surge, particularly in line with the declaration of the decade of gas, but we are yet to see any move by government.
Rather than do the needful, the government is re-imposing VAT on imported LPG, which has been on exemption and gazetted since 2018. The re-imposition of the VAT takes a retrogressive application to years back. So if importers are made to pay for the VAT element, the associated cost will be passed to consumers.’’
According to him, another factor responsible for the high cost of cooking gas is insufficient availability of gas for domestic consumption, saying gas is the only refined petroleum product that is produced wholly in the country and exported as purely finished product.
Nigeria, he said, is a net exporter and importer of gas, lamenting that with the enormous abundance of gas in the country, only 35 per cent of it is available for domestic consumption, while the balance of 65 per cent of volume consumed is imported.
‘‘Even the 35 per cent is irregularly supplied. Because the supply cannot meet the demand, the interplay of forces of demand supply sets in. There are other associated costs paid in foreign exchange domestically, levies and charges which all put together adds to the cost of the product.
The industry is deregulated and this was to allow for investors to easily invest in the industry without government regulating prices as being done with petrol. The problem we have is inadequate supply of gas to the domestic market. The NLNG is the source of LPG in the country but it’s allocation into the domestic market is just 450,000 metric tons out of current consumption level of over 1.2million metric tons which leaves difference of 750,000 metric tons sourced from importation with the attendant freight charges, import duties and high exchange rate among others which account for the high cost of gas.’’