The government is unlikely to exempt, from general sales tax (GST) and central excise duty (CED), the import and distribution of liquefied natural gas (LNG).
"The government will charge 15 percent sales tax and Rs 17.18 per 100 cubic feet CED on import and supply of LNG," official sources told Business Recorder.
The Economic Co-ordination Committee (ECC) of the Cabinet in its meeting on April 14 approved the LNG policy with slight changes. The policy, which is yet to be announced formally, envisages that initial allowance will be admissible at the rate of 50 percent of the cost of depreciable assets, under section 23 of Income Tax Ordinance 2001.
In addition, normal deprecation at the rate of 10 percent will also be allowed on plant and machinery.
Sources said that to facilitate early start of LNG import project, to Oil and Gas Regulatory Authority (Ogra) would issue licence to the applicant, having requisite technical and financial credentials, for a specified location within 90 days, provided the applicant submits a complete application along with detailed feasibility study.
"If the applicant does not achieve financial close within 12 months of the issuance of the licence, the Ogra may terminate the licence on one month's notice," sources said.
For a comprehensive review and evaluation of all applications and feasibility study in a professional manner before issuance of the licences, Ograq would immediately hire services of reputable consultant, the cost of which would be recovered from the project proponent.
The consultant would have to finalise project evaluation reports within one month.
Sources said that the ECC has authorised the Petroleum Ministry to issue appropriate instructions to Ogra for removal of difficulties, and implementation of the LNG policy, with the approval of competent forum, as was approved in the policy draft.
The government will exempt those foreign lenders from withholding tax on interest payments who would invest in import or supply of LNG.
"Exemption from withholding tax on interest payments to foreign lenders will be allowed as permissible under various provisions of the Income Tax Ordinance," sources added.
The following other incentives will be granted to LNG developers, operators and owners:
a) Zero percent customs duty will be charged on imported LNG, whereas buyer or developer, importing LNG, will also be exempted from withholding tax at import stage in respect of such imports. The Central Board of Revenue will issue necessary notification in this regard.
b) Exemption from customs duty in excess of five percent with total exemption from sales tax in respect of plant, equipment and machinery not locally manufactured, imported by the LNG developer, owner or operator, as may be the case, by expanding the scope of SRO 678(1)/2004. Import of such plant, machinery, equipment and plant will also be exempted from withholding tax at import stage as allowed under clause 56(vii) of the part (vi) of the Second Schedule to Income Tax Ordinance, 2001.
The policy states that the task force, headed by Secretary Petroleum and comprising representatives of other stakeholders, will address all issues concerning LNG import project.
Sources added that neither import licence would be required for LNG import nor the government will extend guarantee regarding any LNG import project. However, the government will extend support, if needed, to implement the project.
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