Titas Gas rallies as budget proposes source tax relief

Shares of Titas Gas Transmission and Distribution Company – a publicly listed, state-owned gas distributor – soared over 11%, ranking among the week's top gainers after the government proposed a source tax reduction in the FY2025–26 budget.

From FY2023 to FY2025, the company suffered significant losses due to higher tax expenses, as the source tax had been treated as a minimum tax during final settlements. According to company sources, this tax became a major burden, particularly as Titas has long struggled with unmanageable system losses in its gas distribution network.

In an effort to ease the tax burden and improve the company's profitability, Finance Adviser Dr Salehuddin Ahmed on 2 June proposed reducing the withholding tax – commonly referred to as tax at source – for gas distribution companies from 2% to 0.6%.

Following the announcement, investors rushed to buy Titas Gas shares, pushing the stock price up by 11%, from Tk17.10 on 2 June to Tk19.00 on 4 June.

In its budget review, EBL Securities observed that the reduced source tax could significantly boost the company's net revenue and overall profitability.

A senior Titas Gas official, speaking to The Business Standard on condition of anonymity, said the company could save around Tk400–450 crore in tax expenses due to the proposed cut – a move that could substantially enhance its bottom line.

Tk1,692cr loss in 2 years

In FY24, Titas Gas posted a pre-tax profit of Tk128 crore. However, due to the source tax being treated as a minimum tax, it was required to pay Tk882 crore in taxes, resulting in a net loss of Tk744 crore.

In contrast, the company did not pay any corporate tax in FY23, as it had reported an operating loss. Yet in the first nine months of FY25, despite incurring a Tk457 crore operating loss, Titas still had to pay Tk495 crore in taxes.

According to a senior official, these losses stemmed directly from the company being brought under the minimum tax regime.

He explained that until FY23, Titas customers paid a 3% source tax on gas bills to the National Board of Revenue (NBR), which was adjustable against the company's actual tax liability. Under the prevailing tax law, gas transmission and distribution companies were exempt from the minimum tax provision. As a result, Titas claimed refunds for any excess source tax paid beyond its liability.

In FY24, the government reduced the source tax from 3% to 2%, but made it non-adjustable and treated it as the minimum tax – meaning the full amount deducted at source counted as the final tax payment, even if the actual liability was lower.

He added that Titas customers paid approximately Tk890 crore in source tax during FY2024, all of which was recorded as tax paid by the company.

As a listed company, Titas is subject to a 20% corporate tax rate. Based on its actual profits, it would have owed only around Tk38 crore in taxes that year. "Had that been the case, Titas Gas would have posted a profit," the official noted.

System loss remains challenge

Aside from taxation, system loss remains a major drag on profitability, the senior official said.

The company reported a system loss of 10.13% during the July–March period of FY24, far exceeding the allowable limit of 2%. This means Titas had to bear substantial gas purchase costs without receiving equivalent revenue.

To reduce system losses, the company has undertaken several initiatives, including the disconnection of illegal connections, increased inspections by its vigilance team, and removal of illegal pipelines through mobile court operations.

According to the Ministry of Power, Energy, and Mineral Resources, Titas Gas earns Tk0.2100 per cubic metre as its distribution charge, which constitutes its profit margin.

Since its inception, the company has steadily expanded. It now operates a gas pipeline network of approximately 13,421.45km and serves a total of 2,883,119 connections. 

These include 17 government power plants, 9 private power plants (power rate), 36 private plants (power and captive power rates), and 2 fertiliser factories in the bulk category.