LPG

VAT on Imported LPG and the effect on Cooking Gas prices in Nigeria

Federal Inland Revenue Service

First and foremost, the reintroduction of VAT on Imported LPG this August 2021 did not result in a 100% rise in Cooking Gas prices in Nigeria.

On the 15th of July, we published an article on Factors affecting cooking gas prices in Nigeria. The post highlighted the reason for high LPG prices ( since 2018)  this year. The 7.5% VAT on Imported LPG wasn’t included as it was not a factor then.

 

VAT on Imported LPG
VAT on Imported LPG

 

As of July 15th, without the imposition of the 7.5% VAT in imported LPG, the price of LPG per 20MT was N7.2 Million (about a 100% increase since March 2020); it remained so till the 5th of August when the international Mont Belvieu price was 577 USD/MT. By the 6th of August 2021, the price had jumped to 7.6 Million and 8 Millon on the 11th of August with Mont Belvieu prices at 579 and 597 USD/MT respectively.

The reason for the Jump from 7.2 Million to 8 Million Naira per 20MT at the depots was we gathered was not just the increase in Mont Belvieu prices but as a result of the reintroduction of the 7.5% VAT on the cost of LPG and associated fees ( excluding Throughput charges) is the reason for the jump.

The 7.5% VAT on imported LPG amounts to about a 10% increase in the Landing cost of LPG. And of course, the LPG importers would have to make the necessary adjustment on the cost; other marketers who are not exposed to the 7.5% VAT, but are responsible for about 50% of the LPG volumes in the country, also have adjusted their prices to maximize gains.

The reintroduction of the 7.5% VAT on imported LPG has led to a further increase in the cost of LPG at the retail end. Now LPG which was sold at N6,000 per 12.5kg in most parts of the country is now being sold for close to N7,000.

The effect of continuous increase in LPG prices may not be beneficial to the growth of the industry which has experienced remarkable growth in the past decade, as information from various sources suggests that users are returning to other fuels like Kerosene, Firewood, Charcoal, and electricity. However, it is important to state once again that the industry recorded 2 consecutive 100KT monthly consumption in LPG volumes for the first time in the industry – in a year that has experienced unusually high prices. Would these figures be sustained in August? we will see in a couple of weeks.

What should the Federal Government do about VAT on Imported LPG ( Cooking Gas ) in the light of its commitment to the National Gas Expansion programme?

The Federal Government of Nigeria must revoke the re-introduction of the 7.5 VAT on  LPG/Cooking Gas and encourage more supplies from Local LPG producers. At just over 1 million tons of LPG consumed per annum, Nigeria is still very far from the 5 million tons of LPG potential, which the Federal Government of Nigeria has set as a target in the near term. In order to sustain the growth in the LPG industry ( about 25% per annum ), the Federal Government must make LPG not only available, accessible, acceptable but affordable. At N6500 – N7000 per 12.5kg, new users who are mainly the poor, may not be able to migrate from harmful fuels like Charcoal and Firewood to use LPG. These potential users must be incentivised by not only giving them free cylinders but making it possible for them to continue buying and using COOKING GAS as their cooking fuel.

How long will these high prices last?

The high prices currently experienced will remain till the middle of 2022 when we come out of the Winter season and LPG inventories come close to pre-COVID19 levels. The International Mont Belivieu price of Butane is currently around 600 USD/MT but could repeat 2012 levels when it hit 700USD and above, which could take LPG prices to between N9000 to N10000 per 12.5kg before the end of winter. See post 

The benefits of the use of Cooking Gas must be known to all

The benefits of the use of LPG/Cooking Gas far outweigh the affordability, we must continue as an industry to drive home its healthy, clean, and socio-economic benefits. The education of the masses on the use of Cooking Gas is the pivot on which the new level of growth of the LPG industry hinges; and it’s a collective effort of the Private and Public sectors.

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