Petroleum ministry seeks tax equalisation for LPG

Move could help private companies like Reliance Industries Ltd and Hyderabad-based Super Gas currently operate as parallel marketers to get into mainstream LPG business

With non-subsidised LPG for domestic use becoming part of cooking gas sales in the country, private marketers are smelling an opportunity.

The ministry of petroleum and natural gas too is now seeking an equalisation of duty for commercial LPG which could help private companies like Reliance Industries Ltd and Hyderabad-based Super Gas that currently operate as parallel marketers to get into mainstream LPG business.

A senior government official told Business Standard, the ministry of petroleum has asked the ministry of finance to equalise excise and customs duty across the entire 15 million tonne LPG sold in the country.

Currently, government-controlled Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation sell 14 mt LPG for domestic cooking purposes. This LPG does not attract any tax but the remaining quantity attracts excise and customs duty.

The price differential between LPG sold by government companies and private companies arises not account of subsidy alone. About Rs 96 is added to the price due to excise and customs duties. Sale of LPG by private companies attract a levy of 5% customs duty on imported LPG (Rs 33 a cylinder) and a levy of 8% excise duty on sales to consumers (other than those by IOC/BPC/HPC) which amounts to roughly 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 all volumes, there will be lesser diversion and sales of commercial LPG could also increase,” said the official.

Equalisation would spread the tax collection across the entire LPG quantity which would mean a marginal increase in price of domestic LPG sold by three OMCs, forming over 95% of total sales. It would, on the other hand, bring down the price significantly for the remaining quantity of LPG.

While RIL has about one 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 direct benefit scheme in the subsidised sector there is no reason to exclude private sector from any market and all pricing and distribution restrictions can be withdrawn,” said an executive in a private company.

Stating that the investment needs for the expansion of the LPG market is nearly Rs 3,850 crore for every million tonne sold in a year, the executive said it would be worthwhile for the government to attract private investment in the development of the market by removing the existing restrictions in sourcing and distribution and by providing a level playing field for all players in both packed and bulk LPG business.

The LPG market is undergoing policy changes with the government companies now selling about 10 crore domestic gas cylinders on market rates after a quota of nine is exhausted by a single connection. Besides, DBT has also been introduced which means that the consumer pays the market price to oil marketing companies and gets a credit for subsidy in his account so long it is in the nine cylinder quota.