Gas price hike: Source taxes add to plight of consumers

The Consumers Association of Bangladesh took the Bangladesh Energy Regulatory Commission to court to make them review their decision to hike gas prices and the High Court on Monday asked BERC why it was not doing so.

CAB, in its petition, alleged that Petrobangla was misusing its Gas Development Fund and the court asked the BERC why it was not taking action against Petrobangla.

Gas prices were hiked last June with everyone from gas stove users at homes to large factories having to pay a lot more.

According to CAB's petition, the BERC has been imposing source tax at two stages and shifting the burden of both onto consumers.

The commission's tariff order, dated June 4, 2022, states that there is a 2 percent source tax on LNG import, which adds up to 73 paisa for every cubic metre of gas shipped in.

While converting the liquified gas to gas at the stage of sales, a further 7 percent source tax is imposed. This tax adds up to Tk 3.53 per cubic metre to the price tag.

"[BERC] has applied source tax twice against the revenue requirement of Petrobangla for LNG supply. Double imposition of the same tax is illegal …," said CAB in its petition.

It also said, "The responsibility of paying source tax is on the licencees [Petrobangla] and it should have been deducted from their income."

CAB said the hiked tariffs include a two-step imposition of VAT and that goes against the interest of consumers, as defined by the law.

According to BERC's tariff order, there is a 15 percent VAT on LNG imports and another 15 percent VAT added at the consumer end.

The VAT at the import stage adds Tk 5.50 for every cubic metre of gas, while the VAT at the consumer end is 15 percent of the total cost of the gas consumed.

CAB said the VAT during import is factored into the total supply cost and passed on to the consumers, who then have to pay VAT on the first value added tax.

"This illegal imposition of VAT on the cost of gas supply has created an unreasonable increase in gas tariff at the consumer level which is also a clear violation of the provisions of [the law]," said the petition.

Energy Adviser to CAB Prof Shamsul Alam said the Tk 11,000 crore subsidy given to Petrobangla was being included in the total cost of supply and the consumers are paying tax on that.

The tariff order documents show that Shamsul had recommended the commission not to allow Petrobangla to do this and had that been done, gas would cost 16 paisa less every cubic metre.

Furthermore, CAB's petition stated, "The Gas Development Fund should have been used for exploration and development of local gas but Petrobangla has been using the aforesaid fund for other purposes beyond the scope determined by the BERC."

CAB also petitioned that during 2019-20 and 2020-21, LNG was imported less than the quantity estimated by the BERC, and as a result Tk 14,933.1 crore was left in surplus.

It said the BERC increased the gas prices without adjusting for that surplus.

"Their misuse of the fund from the Gas Development Fund has largely contributed to an increase in the gas tariff, creating an additional financial burden on the consumers," said the petition.

Earlier, during a hearing organised on March 21, 2022, Petrobangla had countered some of these allegations made by CAB.

Meeting minutes of the hearing, included within the tariff order, show that Petrobangla's director of finance had said that the surplus from the years 2019-2021 were used up during the last fiscal year when it cost more to import LNG, and that there was no surplus because the government gave only partial subsidies.

He also said that consumers have to bear the brunt of source taxes because Petrobangla does not import with profit. He also said that VAT cannot be adjusted at the consumer level because the cost of importing LNG is more than the price at which the gas is provided to consumers.

The HC on Monday also stayed a committee formed by the BERC to decide on gas prices for consumer, after the CAB said that the committee contains members who have conflicts of interest.