TAX FREE CNG, WHY NOT LPG ALSO?

By Oluwabukola Jimoh ــ Last Update 01 September 2023

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In a move aimed at accelerating the adoption of Compressed Natural Gas (CNG) as an alternative fuel source, the Federal Government of Nigeria has introduced a groundbreaking initiative. The government is extending a notable offer of zero customs duty and zero value-added taxes (VAT) on the importation of CNG conversion kits into the country.

Ajuri Ngelale, the Special Adviser to the President on Media and Publicity, conveyed this strategic decision during an interview on Friday night,August, 19th 2023 via Channels Television. The rationale behind this significant step is to stimulate the importation of CNG conversion kits and concurrently pave the way for the establishment of indigenous CNG kit assembly plants within the nation.

This endeavor is aligned with the government's broader vision to reduce energy costs post the removal of fuel subsidies. The removal of these subsidies had directly impacted the populace, manifesting as heightened food and transportation expenses. The Presidential CNG Initiative (PCNGI), helmed by Femi Gbajabiamila, the President's Chief of Staff, seeks to alleviate these financial burdens, particularly for low-income earners relying on motorcycle taxis (okadas) and tricycle apps (keke apps).

Ajuri Ngelale underscored that the implementation strategy is rooted in the synergy between the private sector and federal regulatory bodies. The government is keen on achieving a balanced partnership that fosters economic growth and sustainability. He highlighted that this initiative is not merely a handout, but a meticulously structured collaboration.

In collaboration with NIPCO Gas Limited and the Nigerian National Petroleum Company Limited (NNPCL), a pivotal strategic partnership has been forged to establish CNG as a robust alternative fuel in Nigeria. The venture encompasses the construction of 35 state-of-the-art CNG stations across the country, including three Mother stations. These stations are poised to significantly decrease the cost of automobile fuel and transportation for the nation's citizens.The phased rollout of the CNG project is anticipated to commence with the first quarter of 2024. The initial phase will encompass 21 CNG stations, primarily focusing on intra-city transportation.

Ajuri Ngelale encapsulated the essence of this transformative initiative, stating, "This is not a federal or state giveaway; this is a meticulously arranged private sector partnership with the Federal Government." With an envisaged initial investment of N200 billion, the private sector will be spurred to participate actively, buoyed by financial guarantees, tax incentives, and a strategic counterpart funding mechanism.

In essence, the Federal Government's resolute commitment to fostering CNG adoption sets a transformative course for Nigeria's energy landscape. This endeavor not only tackles soaring energy costs but also empowers citizens while driving economic growth through innovative private-public partnerships. The second phase, comprising 35 CNG stations, will support inter-city transformation and will be ready by late 2024. This will be further complemented by an additional 56 stations to be deployed by NNPC Retail across the country.

Recommendation - Extending Tax-Free Status to LPG in Nigeria.

The Federal Government's move to grant tax-free status to Compressed Natural Gas (CNG) through the zero customs duty and zero value-added taxes (VAT) on CNG conversion kits is a commendable step towards advancing alternative fuel sources and bolstering economic growth in Nigeria. However, it raises the question of whether a similar tax-free status should be extended to Liquefied Petroleum Gas (LPG), also known as propane or butane. Here are some key considerations:

1. Equity and Fairness: Granting tax exemptions to one alternative fuel source while leaving another taxed may create disparities and potential market imbalances. To promote fairness and a level playing field, policymakers should evaluate the case for extending tax benefits to LPG, especially since it is also a cleaner and environmentally friendly fuel option.

2. Encouraging Diversification: Encouraging the adoption of multiple alternative fuels, including both CNG and LPG, can help diversify the energy mix in Nigeria. This diversification not only contributes to energy security but also reduces the nation's dependence on a single energy source.

3. Incentivizing LPG Use: LPG has a wide range of applications, from cooking and heating to powering vehicles. Tax incentives for LPG can promote its adoption in various sectors, leading to reduced energy costs for households and businesses, as well as mitigating the environmental impact associated with traditional fuels like kerosene and firewood.

4. Job Creation: The LPG industry has the potential to generate employment opportunities, especially in the distribution, retail, and infrastructure development sectors. Tax incentives for LPG can stimulate investments in these areas, contributing to job creation and economic growth.

5. Environmental Benefits: LPG is known for its low emissions and reduced environmental impact compared to traditional fuels. Encouraging its use aligns with sustainability goals and supports Nigeria's commitment to reducing greenhouse gas emissions.

6. Addressing Energy Poverty: Making LPG more affordable through tax incentives can help alleviate energy poverty, as it provides a cleaner and safer energy source for households, particularly in rural areas where access to electricity and clean cooking fuels is limited.

In light of these considerations, it is recommended that the Federal Government assess the feasibility of extending tax-free status to LPG in Nigeria. This move would align with the government's commitment to reducing energy costs, promoting environmentally friendly fuels, and fostering economic growth through innovative energy solutions. A comprehensive evaluation of the potential benefits and implications of such a policy change should guide the decision-making process, ensuring a balanced and equitable approach to energy diversification in Nigeria.

Source: Nairametrics.

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Oluwabukola Jimoh

Oluwabukola Jimoh is a dynamic academic writer and captivating energy blogger. She is able to delve into intricate subjects with an insatiable thirst for knowledge, crafting thought-provoking essays that engage and enlighten her readers.