The National Board of Revenue (NBR) has issued an order setting the Value Added Tax (VAT) on the production of Liquefied Petroleum Gas (LPG) at 7.5%.
Previously, the VAT rate on LPG production was 5%, representing a 2.5% increase. This decision comes during a nationwide gas crisis, where the demand and supply for LPG continue to grow.
Consumers, including industrial factory owners and household cylinder gas users, have expressed concerns about potential price hikes resulting from this VAT increase.
On Monday, January 13, the NBR clarified the 7.5% VAT rate on LPG production through a special order, which also specified that any additional VAT beyond 7.5% would be waived.
The need for clarity arose after an ordinance issued on Thursday increased duties, taxes, and VAT on over a hundred goods and services. However, the ordinance excluded LPG from the list of items, leading to confusion about its applicable VAT rate. To address this, the NBR issued the special order.
Under the ordinance, LPG was removed from the schedule of listed items, where it previously had a 5% VAT on production. Normally, items not included in the schedule are subject to the standard 15% VAT.
However, the NBR’s directive set the VAT rate for LPG production at 7.5%.
This created uncertainty about how much VAT the commissionerate should collect and how much businesses should pay. To resolve the issue, the NBR issued a special order providing clarity.
Although imposing taxes typically requires an ordinance, the NBR used a special order to address the legal complexity since this matter involved a tax waiver.
The order also clarified that the directive would take effect retroactively from January 9, the date of the ordinance.
To mitigate the potential price impact on this essential product, the VAT on LPG supply at the local trader level was reduced to 0% in Thursday's ordinance.