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Higher VAT on LPG cylinders keeps customers away from DBT
September, 13th 2013

Customers are having to pay more for every cooking gas cylinder procured under the direct benefit transfer (DBT) scheme, potentially delaying the transition to a regime in which the subsidy is directly credited into the bank accounts of beneficiaries.

This is because state governments are levying value-added tax (VAT) on the actual price of the liquified petroleum gas (LPG) cylinder (around Rs.900 which varies across locations), discarding the earlier practice of levying it on the subsidized price (around Rs.400 which varies across locations), leading to an additional outgo of around Rs.50 per cylinder for customers. Due to this, customers are not proactively moving to the DBT regime.

To resolve this, the ministry of petroleum and natural gas has written to state governments, asking them not to levy VAT on an ad valorem (according to value) basis and instead suggested that they should levy a fixed amount on every cylinder

“We have written to the state governments asking them not to levy VAT on an ad valorem basis. It is the customer in every state who is suffering,” said Neeraj Mittal, joint secretary in the ministry of petroleum and natural gas. “We have asked them to levy a fixed amount on every cylinder instead. The state governments have to now take a decision.”

The government started the DBT scheme for cooking gas cylinders on 1 June in 20 districts. The government has so far transferred around Rs.271 crore under the scheme for LPG cylinders to around 6.5 million customers. It hopes to cover 289 districts in a phased manner by January 2014 under this scheme. There are around 140 million LPG customers in the country.

Under the scheme, when a customer places a booking for a cooking gas cylinder, an amount of Rs.435 is deposited upfront into the bank account of the customer to help them pay the price of the cylinder. Subsequently, the prevailing subsidy at the time of the refill is credited to the beneficiary’s account.

A household is entitled to nine subsidized cylinders in a year.

In the districts where the government has rolled out the scheme, customers who do not have a bank account or have not got their Aadhaar unique identity numbers linked to their bank accounts have been given three month’s time to do so. During this time, the government will supply LPG both under DBT scheme and at a subsidized rate.
A banker with a Delhi-based bank pointed out that this three-month window along with the higher VAT is discouraging customers from getting their bank accounts linked to their Aadhaar numbers.

“Customers are not in a hurry to get their accounts seeded with their Aadhaar number and are willing to delay this for as long as they can. They are asking ‘why should we move to DBT given that we have to pay more for every cylinder because of the higher VAT’,” the official said.

DBT is the flagship programme of the United Progressive Alliance government which aims to directly credit the bank account of beneficiaries of various welfare schemes. Launched on 1 January, it has now expanded to 28 schemes in 121 districts.

“Consumers have no choice but to shift to DBT if they wish to continuing getting cylinders at a subsidised rate,” said N.C. Saxena, a member of the National Advisory Council.

“Paying a slightly higher amount as VAT may be better than paying more than Rs.900 per cylinder. With the government planning to move more schemes under DBT, it is better to open a bank account and get it seeded.”

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