The Nawaz Sharif government’s intransigent stand on the gas infrastructure development cess in spite of the Supreme Court’s rejection of its case has further “damaged its credibility as a business-friendly administration” amongst businesspeople.

The apex court had in August declared the gas infrastructure development cess (GIDC) a fee and ruled that it couldn’t be levied through a money bill. It also ordered the government to refund the funds collected as GIDC so far; the government has requested a review of the decision.

Besides businessmen, both Sindh and Khyber Pakhtunkhwa have opposed the implementation of the GIDC, with the Sindh Assembly recently passing a resolution against it.

‘The government’s insistence on GIDC’s retrospective collection will make the industry sick at the cost of exports and jobs’

“I’m at a loss to understand as to why the government is so badly trying to implement the cess after losing its case in the Supreme Court,” wondered Mohsin Aziz, a leading exporter from KP.

“It should respect the court’s decision as well as the fact that the business community from Karachi to Khyber is united in its opposition to the GIDC, because it will significantly add to the cost of production,” he said.

The previous government had introduced the GIDC in December 2011 to raise funds for importing gas from Iran and Turkmenistan through pipelines, and to build an LNG terminal at Port Qasim.

The money collected so far — over Rs100bn, according to a petroleum and natural resources ministry official — is being used to keep down the fiscal deficit to meet the IMF’s requirement; against the essence of the levy. The budget targets GIDC collection of Rs95bn during this fiscal.

The PML-N government had raised the cess from Rs50 per mmbtu to Rs100 per mmbtu in its first budget, and then to Rs200 per mmbtu in the current budget.

Almost 4,000 companies are said to have filed cases against the GIDC since its introduction.

Yasin Siddik, a textile manufacturer from Karachi, was furious that Finance Minister Ishaq Dar had used the GIDC funds to fill the fiscal gap.

“It has become the government’s habit to extort money from the industry for projects that seldom see the light of day, and to use those funds for covering the fiscal deficit. Infrastructure projects should be financed from public development funds, instead of burdening the industry — which is already reeling from the high cost of doing business — with new taxes and levies.”

The retrospective implementation of the GIDC will hit manufacturers in Sindh and KP harder as their gas usage is much higher than their counterparts in Punjab, who receive supplies six hours a day.

“The implementation of the GIDC will be disadvantageous for Sindh’s industry and make us uncompetitive. We shouldn’t be paying this cess because Sindh doesn’t need imported gas,” Siddik concluded. He added that the textile industry alone would be forced to pay around Rs40bn if the government’s plan to impose GIDC retrospectively succeeded.

But, according to Pakistan Textile Exporters Association leader Ahmed Kamal, Punjab’s industry — suffering from energy shortages, unfavourable international environment and government-sponsored competition from regional rivals like China and India — is also not in a position to sustain even the smallest of new burdens, let alone the huge weight that the GIDC would place on it.

Siddik said the country wouldn’t need imported gas if widespread gas theft and line losses of gas companies were controlled. “Our politicians must realise that the provision of piped gas for domestic consumption is a waste of the resource, and they should stop using it to win elections.”

He was happy that the Sindh government had finally woken up and raised its voice against the fee to protect the constitutional right of the province to have the first right-of-use of its resources.

Meanwhile, the PTI, which rules KP, has unsuccessfully tried to block the clearance of the GIDC Bill 2014 by a standing committee of the National Assembly.

Mahmmod Rasheed, a lawyer who is representing the industry in cases against the GIDC in Punjab, said the government couldn’t recover the fee without giving the corresponding service. “I don’t think the government has a chance on getting the apex court’s decision reversed because it hasn’t used the GIDC funds for the purpose they were collected for.”

Business leaders like Aptma chairman S.M. Tanveer believe that the government should accept the ground realities and take a step back from its stand on the GIDC. “The best course for the government would be to refund the collected GIDC funds as directed by the apex court and stop insisting on its recovery with retrospective effect.”

He advised the government to convene a Council of Common Interests meeting to discuss the levying of the GIDC in the future, and to take the industry into confidence on its plans.

“The retrospective collection of this tax will lead to industrial closures because the export-oriented industry is already in the red on account of the rising cost of doing business and massive rebates and other incentives allowed by regional rivals like China and India to their manufacturers,” he said.

“No manufacturer has accounted for the GIDC into their cost. Even the government had discontinued billing it to the industry two years ago. The government’s insistence on its retrospective collection will make the industry sick at the cost of exports and jobs.”

Published in Dawn, Economic & Business, April 6th, 2015

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