The market price of LPG is calculated after taking into account import charges, import parity price, refinery transfer price, bottling charges and the cost of working capital
New Delhi: LPG prices have come down on the back of falling global prices of gas international prices and strengthening rupee. However, the goods and service tax is playing a part in prices of gas cylinders not coming down as much as they should have.
Although the government subsidises the cost of each 14.2 Kg cylinder, the subsidy is not calculated taking the 5% GST into account. The tax is calculated on the market price and
not the base price leading to a surge in prices. The price of each imported LPG cylinder after taking into account freight costs of the gas from Gulf to Jamnagar is Rs.459.92.
The non-subsidised cylinder, however is sold at a whopping Rs. 698.
Now, 5 percent GST is calculated on the market price including that of the distributor’s commission. The market price of LPG is calculated after taking into account import charges, import parity price, refinery transfer price, bottling charges and the cost of working capital. Therefore, the market determined price of each cylinder is Rs.605.71 while the distributor’s commission is Rs. 50.86/cylinder. Hence the GST on each cylinder comes to Rs. 32.83.
The tax figure per cylinder changes every month depending on the average international benchmark LPG rate and foreign exchange rate. Hence, the government’s subsidy amount varies in tandem with international prices.
As per the government scheme, there are two types of LPG customers-subsidised and non-subsidised. While the subsidised households are protected against price surges as the government subsidises them for 12 cylinders a year, the non-subsidised households bear the brunt of higher international prices.
The government slashed prices of non-subsidised LPG by Rs. 120.5/cylinder on 1st January. Hence consumers (in Delhi) are now paying Rs.698/cylinder while the effective price after subsidy stands at Rs.494.99/cylinder. This means the government is paying a subsidy of 194.01/cylinder, which is directly transferred to the linked bank account of each beneficiary.
The Modi government is also expected to rollover its petroleum subsidy for the current fiscal to the next financial year as it has exhausted nearly 82% of its allocated subsidy
in the first half of the year.
Analysts have pointed out that the allocated petroleum subsidy for FY18-19 which is marginally higher than the sum allocated in FY 17-18, has been underestimated given the volatility of crude prices. The allocated petroleum subsidy for FY 18-19 is Rs. 24,933 cr of which Rs. 20,355 cr has already been spent in the first half of the year. OMCs do not expect any compensation from the government once the subsidy amount is fully exhausted.
The fiscal-prudent government is also not expected to foot this subsidy bill as it also bullish on sticking to the fiscal deficit target of 3.3% of GDP in FY 18-19.