Gas import pipelines, LNG projects: Ministry proposes exemption of duties and taxes

The Ministry of Petroleum and Natural Resources has proposed exemption of duties and taxes on the gas import pipelines and LNG projects including exemption of sales tax/Federal Excise Duty on imported natural gas as per SRO678(1)/2004 at import stage, as was in the indigenous case of exploration and production (E&P) companies.
Sources told Business Recorder on Saturday that the MPNR has submitted a proposal to the Economic Co-ordination Committee (ECC) of the Cabinet for extending tax exemptions on the gas import pipeline and LNG Projects. According to the summary, the MPNR is making its best efforts to improve gas availability position in the country by jacking up indigenous gas production as well as through imported natural gas and LNG to mitigate the shortage.
While the gas import projects demonstrate substantial savings to national exchequer, they are capital intensive and technically complex, requiring timely foreign investment, funding and import of certain critical equipment, materials and machinery. Keeping in view such high upfront costs, as well as country's risk profile, some attractive cost reducing and facilitative incentives are required to encourage foreign investors' participation in the projects, sources said.
Sources said that the Ministry had placed a Summary before the ECC on November 11, 2011 seeking exemption of taxes and duties on the gas through pipeline and LNG projects. The ECC of the Cabinet deferred consideration of the summary and directed to resolve the issues concerning exemption from taxes and duties etc in consultation with Revenue and Finance Divisions and re-submit for the consideration of the ECC in the subsequent meeting. ECC Decision No ECC-151/15/2011 dated 11th November 2011.
In pursuance of the ECC decision, meeting was held between MPNR and Revenue and Finance Division on 16th November 2011. The matter was deliberated and the following tax exemptions and incentives are proposed to be allowed to Natural Gas import projects/companies, their contractors, sub-contractors and service companies and LNG Development/ LNG Terminal Owner/Operators (TO/O), their contractors, sub-contractors and service companies on the analogy of the exemptions allowed to Exploration and Production (E&P) Companies vide SRO 678(1)/2004 dated 7th August 2004:
Firstly, exemption of Sales Tax / Federal Excise duty (ST/FED) on imported natural gas as laid down in SRO 678(1)/2004, dated 07.08.2004 at import stage as in indigenous case for E&P Companies. Secondly, exemption from Sales Tax for EPC Contractors involved in the gas import projects.
Thirdly, exemption from custom duties on HR Coils, Line pipe, Pylons/ Piles to be included / added in Clause -3 of the SRO 678(1)/2004, dated 07.08.2004. Fourthly, temporary importation of plant, equipment, machinery, LNG Terminals and Peripheral Infrastructures etc to be allowed for the projects duty free on import cum export basis.
Fifthly, addition of natural gas infrastructure importers and its developers in the clause -2-a of the SRO 678(1)/2004, dated 07.08.2004. Sixthly, collection of applicable taxes, duties and any other levies, may be deferred till the commencement of commercial operations of the natural gas and LNG import projects, on the analogy of such facility provided to Power Projects by ECC in July 2009, conveyed vide letter No F.1/12/2009-Com dated July 29, 2009.
Seventhly, five years Tax Holiday from Income Tax on Terminal operators has also been proposed by the ministry. The Petroleum Ministry had circulated to Revenue and Finance Divisions with a request to offer their comments for the ECC. Comments from Revenue Division/Custom Wing and Finance Division have been received. Minister for Petroleum and Natural Resources has submitted the latest proposal on taxes exemption to the ECC for approval.