Shell gas yesterday denied a statement made by MP, Dinesh Gunawardene that "shell gas has already increased prices on the pretext that VAT was already in operation".

Country Chairman and Managing Director of Shell Companies in Sri Lanka, Roberto Moran said that the impact of the Value Added Tax (VAT) would not be reflected in the prices of shell gas in July although VAT is due to come into effect in July. Instead the effect of VAT will be reflected in the next price review in August, he said.

"As to VAT’s effect on domestic LPG prices, there will indeed be a net taxation increase, from the defence levy of 6.5% to 10% VAT. At this point in time, however, it is premature to say whether this will result in a net price increase in August, as we need to assess the other factors in the pricing mechanism, such as the international LPG prices and the foreign exchange rate" he said.

Moran claimed that the price increase on June 15, this year was a result of an increase in international LPG prices reflected by the Saudi Aramco Contract Price (CP), which went up by $26 per metric tonne from March to May and the depreciation of the Sri Lankan Rupee against the US dollar from Rs. 95.0 to Rs. 96.1 over the same period.

"This adjustment took into account the cost averages of April and May and therefore did not reflect any element of the new VAT.

He said that the recent increase by shell and previous price adjustments were based on a pricing mechanism adopted by Shell Gas with the understanding of the Ministry of Commerce and Consumer Affairs. "The mechanism is based on the previous months’ costs of components that build up our price". The components that fluctuate on a regular basis are the product cost reflected in the Saudi Aramco CP and the exchange rate.

He said that Shell had appealed to the Ministry of Finance for a zero rate VAT for domestic LPG considering that this product was previously GST-exempt.. However his request had been denied. He said that Mr. Gunawardene had acknowledged and thanked Shell for the letter of clarification sent by them. — (HJ)