Analysts see broad consumer price pressure after gas VAT 

With reaction still trailing the hiking of the price of cooking gas following the reintroduction of value added tax (VAT) on imported liquefied petroleum gas (LPG), a universe of Business A.M.’s analysts community say they see the situation in the long and broad view of consumer price pressure.

According to them the rise in the price of the commodity only adds to the pressure faced by Nigerian consumers who are already buffeted in many areas of their daily life, especially in relation to the high prices of many items in the economy.

The reintroduction of VAT on imported cooking gas, say some economic analysts, only suggests that Nigerians should brace up for further price pressures on the commodity in the short term, with the attendant pass-on effect on other commodities in the economy.

They expect to see price pressures on cooking gas in the near future leaving the average Nigerian consumer to bear the brunt of rising household commodities and consumer food prices.

Data prepared by the the National Bureau of Statistics (NBS) in its monthly price watch on cooking gas (LPG) published in August showed that the average price for the refilling of 5kg increased by 3.52 percent month on month and by 8.64 percent year on year to N2,141.59 in July 2021 from N2,068.69 in June 2021. Also, the average price for the 12.5kg cylinder surged 3.11 percent month on month and by 7.2 percent year on year to N4,422.3 in July 2021 from N4,289.05 in the previous month.

The report by the Abuja based-statistics office also shows that the refilling of a 5kg cylinder was highest in Akwa Ibom (N2,600), Benue (N2,540) and Bauchi (N2,486.86) states, respectively, while Abuja (N1,806.15), Lagos (N1,840.80) and Ondo (N1,842.94) states reported the lowest of costs. For the 12kg across states saw the highest average in Abuja (N5,050), Gombe (N5,000) and Kogi (N4,985) states, while Kaduna (N3,718.09), Zamfara (N3,725.38) and Oyo (N3,859.97) states recorded the lowest prices to refill the gas quantity.

Analysts at United Capital, in a research commentary note, observed that the move [VAT re-introduction] is expected to further pressure a weak consumer base as well as exacerbate inflationary pressures.

“We recognize that the Federal Government’s decision to reintroduce VAT on imported cooking gas is also a strategic move to encourage local LPG producers. This comes at a time when NLNG raised its LPG output and appointed three new off-takers. In addition, domestic producers like ARDOVA have ventured into the construction of new LPG plants and terminals with the aim of boosting domestic LPG production. Thus, we believe should these various projects materialize and contribute a significant portion of locally consumed LPG, the FG’s move to protect domestic production may become a masterstroke. That said, in the interim, the move is expected to further pressure a weak consumer base as well as exacerbate inflationary pressures,” they stated.

However, this latest prompt increase in the price of cooking gas has been down to devaluation of the naira as well as the increase in the dollar cost of the commodity. Worth mentioning is that Nigeria imports the majority of its cooking gas while the rest is mainly supplied by the Nigeria Liquefied Natural Gas company (NLNG). Therefore, importers have had to pay more for imported cooking gas and have subsequently passed on the higher cost to consumers.

Sarki Anwalu, director, Department of Petroleum Resources, in a statement said that the absence of VAT on imported LPG was double jeopardy for the federal government as the government was losing revenues from the non-collection of VAT, as well as the discouragement of local investment in the LPG sector in Nigeria.

‘‘For me personally, I wouldn’t like the country to be importing LPG because this is a country with a potential of over 600 trillion cubic feet of gas. We have proven reserves of gas in excess of 206 trillion cubic feet of gas. So if we allow LPG imports without restriction, that means we are not giving opportunities for upstream investors to drill and get this gas, thereby creating jobs and providing more revenue to government coffers,” Anwalu noted.

Also reacting to the government’s decision to reintroduce VAT on cooking gas, the Nigerian Liquefied Petroleum Gas Marketers Association (NALPGAM), led by Essien Bassey, its executive secretary, argued that the development has resulted in an upsurge in the price of cooking gas for some time now because there has been increases in the price marketers buy the product from the depots and terminals.

Bassey further disclosed that as a result of the VAT introduction, a 20 metric tonne truck now sells for N8 million. “A 20 metric tonne truck of LPG goes for N3.4 million as of December 2020, and sells for between N5.4 million and N5.6 million at the start of 2021. The average cost of a 12.5 kg cylinder of gas sells for about N6,000 and if the situation persists till December  2021, a 12.5kg cylinder of gas may sell for N10,000 or more.”

Some see desperation on the part of the government in its quest to raise revenue to meet its expenditure plan. The VAT is seen as a continuation of its effort to widen the tax base and make more money to plug a deficit that has continued to linger from one budget circle to the next.

It has taken a raft of actions in pursuit of revenue in recent times. For instance, as of June 2021 it revealed plans to impose a tax on global tech giants operating in the country. Also, it further announced it would bring back tolls across the country and especially in Lagos State, which it said could be positive to what has been labelled as dividends from a VAT rate increase

A report on tax collection during the first half of 2021 published by the National Bureau Statistics (NBS) revealed that total VAT revenue hit N1.01 trillion as the economy engages in full activities while total company income tax (CIT) rose to N864.72 billion by the end of June 2021. The increase in the revenue from company taxes can be said to have been driven by a supportive double-digit growth in company income tax (CIT) collection accompanied by the return of growth trajectory of some very important sectors of the Nigerian economy.