Double VAT on LNG may go as it bleeds Petrobangla, industries

State-owned Petrobangla had to cough up Tk1.13 crore in taxes for every one million cubic metres (mcm) of LNG it imported in FY24 – an exorbitant sum that raises serious concerns. But why is this happening, and what does it mean for consumers and Petrobangla itself?

The answer lies in the excessive taxation imposed by the National Board of Revenue (NBR). Currently, LNG faces a 15% VAT at the import stage and another 15% at the consumer level – a case of double taxation without any actual value addition. This violates the core principle of VAT. On top of that, the NBR slaps an additional 2% advance tax (AT) and a 5% source tax, further inflating costs.

If VAT were imposed just once and the 2% advance tax scrapped, Petrobangla could save an estimated Tk6,000-Tk6,500 crore – a sum equivalent to the government's current LNG subsidy burden. The impact? Industrial consumers, already struggling with rising costs, wouldn't have to brace for a gas price hike of up to 150%, as proposed by seven gas distributors.

Sensing the gravity of the issue, the government seems to have finally taken notice. NBR officials have indicated that VAT at the consumer level could be withdrawn if the government gives the green light.

In a high-level meeting on 9 March, Energy Division officials – including Power and Energy Adviser Muhammad Fouzul Kabir Khan and Energy Secretary Md Saiful Islam – sat with NBR representatives, urging them to scrap the double VAT on LNG.

Speaking to The Business Standard on 12 March, Muhammad Fouzul Kabir Khan was blunt,

"The principle of VAT is value addition. But our value addition on LNG is negative because we sell it at a subsidised price. We have instructed the NBR to avoid double VAT imposition."

He further added, "We had a discussion with the NBR on this issue, and we will push for a single VAT at the import stage."

When attention was drawn to the proposed hike in gas prices from the business community, the adviser said, "I am well aware of this."

Why VAT cut is on the table

The move to cut VAT and tax comes in response to pressure to keep LNG import costs as low as possible, as the government faces mounting opposition from business communities over its plan to hike gas prices for industrial and captive power plants by up to 150%, as proposed by seven gas distributors.

Petrobangla officials said that if the NBR waives VAT and AT on LNG at the consumer level, it would save roughly Tk6,000-Tk6,500 crore – funds that could be used to import LNG cargo without adding to the subsidy burden or raising gas prices.

AKM Mizanur Rahman, director (finance) of Petrobangla, said, "We are under pressure from businesses not to hike gas prices. If the NBR waives VAT and AT on LNG at the consumer end, we will be able to bring in some additional cargoes with the money saved from the current VAT and AT regime."

When TBS asked Hossain Ahmed, member (customs policy) of the NBR, about the Energy Division and Petrobangla's proposal, he said, "We discussed the double imposition of VAT on LNG, which the NBR considers unjustified. We will look into this matter."

"If we receive a formal request from the concerned department to waive VAT and AT, we will place it in the next budget," Hossain Ahmed added.

Other charges fuelling price hike

Several other charges are also imposed on per cubic metre of LNG import, such as Rupantarita Prakritik Gas Company Limited's (RPGCL) operational charge of Tk0.1043, Petrobangla's charge of Tk0.0683, a gas development fund contribution of Tk0.3937, a Bangladesh Energy Regulatory Commission (BERC) research fund charge of Tk0.03, an average distribution charge of Tk0.2387, and a transmission charge of Tk1.02.

In FY24, Petrobangla had to pay Tk5,065.71 crore as VAT, Tk675.43 crore in Advance Income Tax (AIT), Tk2,475.87 crore in source tax, and Tk421 crore in other expenses.

BERC is expected to deliver its decision on the gas price hike proposal within 60 days from the hearing held on 26 February.

Md Zakir Hossain, joint secretary (Development-2) of the Energy and Mineral Resources Division, said the ministry has asked the NBR to scrutinise the repeated VAT imposition.

LNG import data

In FY23, total LNG imports stood at 6,313.22 mcm, with 5,156.99 mcm imported under two long-term deals and 1,156.23 mcm through spot purchases.

LNG imports surged in FY24, rising by almost 1,000 mcm to reach 7,273.28 mcm. While long-term imports fell to 4,959.28 mcm, spot purchases increased to 2,314 mcm.

In the first half (July to December) of FY25, LNG imports totalled 4,502.80 mcm, with 2,802.09 mcm from long-term contracts and 1,700.71 mcm from spot purchases.

Local production data

Gas extraction from local sources saw a consistent decline over the years. Petrobangla estimated that gas production from local source in FY25 will be 20,066.74 mcm, which was 21,081.56 mcm in FY24 and 22,651.22 mcm in FY22.

What BERC thinks about proposed gas price hike

Talking to BERC officials, TBS learned that they agree with the business community's view that if the proposed gas price hike goes through, it will discourage investment in Bangladesh. BERC is also awaiting the NBR's decision.

Md Mijanur Rahman, member (Gas) of the Bangladesh Energy Regulatory Commission, told TBS on 17 March, "It is clear that if gas prices are hiked, it will discourage investors. Before taking any decision, we have to consider the impact of price hikes on the economy and industrial production."

System loss and economic impact

BERC data shows that the nationwide system loss reached a staggering 13.53% in the first half (July–December) of FY25, up from 8.43% in FY24 – far exceeding the allowable limit of 2%.

Petrobangla bought 28,964.44 mcm of gas from local and import sources in FY23, but sold only 26,323.98 mcm, causing a system loss of 2,640.46 mcm.

In FY24, against the purchase of 28,354.84 mcm, sales stood at 25,964.46 mcm, resulting in a system loss of 2,390.38 mcm.

In the first half of the current FY25, Petrobangla purchased 14,672.62 mcm, but sold 12,686.86 mcm, leaving a system loss of 1,985.76 mcm.

Petrobangla said system loss this year will surpass 3,000 mcm as the government ramps up LNG imports to meet Ramadan and summer demand.

Without VAT, tax, and other charges, the net cost per cubic metre of LNG was Tk59.35 in FY24.