Olusola Bello
The Federal Government is contemplating removing Value Added Tax (VAT) and import duty imposed by the Federal Ministry of Finance Liquefied Petroleum Gas (LPG) or cooking gas to bring down the price, an industry source informed Business standards.
These two components are responsible for the astronomically high increase in the price of the commodity; aside from the fact foreign exchange is high and scarce. Also, the price of the product is high in the international market. So adding VAT and import duty was just to compound the already bad situation.
The Ministry of Finance in its overdrive to rake -in more revenue for the Federal Government from non-crude oil sector decided to impose import duties and VAT on the commodity which was not part of those commodities that are subjected to such taxes and tariffs.
Prior to 2017, there was no VAT or Import duty levy on LPG.
However, a letter approving the collection of VAT and Import duty on the commodity was signed by the former Chief Staff to the President, Late Abba Kyari, at the request of the current Minister of Finance, Zainab Ahmed.
The letter with reference no SH/COS/24/A/3785 which was directed to the minister of Finance reads: ‘Re: Tariff for Liquefied Petroleum Gas LPG subsector”
“Further to your request on the above subject matter, kindly note that the president has approved as follows:
a. That imported LPG should attract 5 percent import duty and 5 percent charge VAT to align with the ECOWAS Common External Tariff 2015-2019.
b. That HS Code for imported LPG henceforth be2711.29.00.00 which is categorized as others and has 5 percent import duty and 5 percent VAT; and
c. That waiver of import duty on machinery, equipment and spare parts for the establishment LPG plant for ten years. The above waiver is to be subject to renewal after five years and each applicant to be required to obtain a letter of support from the Ministry of Petroleum Resources and Federal Ministry of industry, trade, and investment”
The Olusegun Obasanjo’s government did not impose import duty and VAT on the commodity in order to encourage the expansion of local consumption of cooking gas and also it’s market penetration among the locals.
The action was also to discourage deforestation among rural dwellers and promote good health because using firewood and kerosene as sources of energy has serious health implications.
Consequently, the consumption of cooking grew from about 750 metric tons per year to 1.2 million tons as of 2020. It was even projected that it would get to 2 million tons by 2021 before the government decided to slam import duty and VAT on the commodity and backdated the payment arrears to 2019 resulting in some of the very few companies that import the product into the country being asked to pay between N4 billion to N22billion of Naira in arrears.
Available Production capacity in- country
About 40 percent of what is consumed is produced in-country while the remaining 60 percent is imported. But with this development, the level of imports has reduced as companies such as Matrix, NIPCO, Prudent and others could not cope with import duty and VAT arrears slammed on them.
Currently, the Nigeria LNG produces 450,000 metric tons. But it is not sure if the company has started moving close to that target because of COVID19, Nigeria Petroleum Development Company (NPDC), 150,000 metric tons, Kwale Hydrocarbon 130,000metric tons all these are far from what the country needs
Prior to 2017, there was no VAT on imported LPG, but there was on locally produced LPG, all because of the fact that the local production needed to be augmented with imported to meet the market needs.
People are now looking for firewood as an alternative to gas.
To address the shortage in supply, however, the country is planning to reduce significantly export of LPG by multinational companies such as NLNG, Exxon Mobil and Chevron. NLNG has already reduced the volume it is exporting to a very significant level by planning to push 450 metric tons into the local market. These are some of the measures that can be put in place that would have immediate effect on the price of the product.
There are also a couple of other projects that are coming on stream that will enable competition and increase the number of players. This would bring down the price, according to industry sources. So in a short time, LPG exports from Nigeria are going to be reduced with those volumes brought in the country. This would have a significant impact on the price of the commodity.