The revenue authority has reduced value added tax (VAT) on locally made cylinders for storing liquefied petroleum gas (LPG) in order to allow domestic manufacturers to better compete with imported cylinders and enable users to afford bottled gas.

The VAT rate for locally-made LPG cylinders has been slashed to 5 per cent from 15 per cent, the National Board of Revenue (NBR) said in a notice issued at the end of last week.

The benefit will remain effective until June 30, 2021, the NBR added.

The move follows pleas from domestic manufacturers of LPG cylinders after the government imposed 15 per cent VAT on local manufacturing from the beginning of fiscal 2020-21 in July.

Until the last fiscal year, there was no VAT on locally made LPG cylinders.

Azam J Chowdhury, chairman of the East Coast Group, which has an LPG cylinder production plant, said imports became cheaper than local cylinders after the imposition of 15 per cent VAT.

"We demanded that the government ensure parity with imported ones. Following the move, local industries will get some advantage," he said.

Omera Cylinders is a concern of East Coast Group.

Bangladesh has 11 companies producing LPG cylinders and their combined production capacity is 85 lakh units whereas the annual requirement is 65 lakh units, according to Chowdhury, also president of the LPG Operators Association of Bangladesh.

"This is a heavy industry and given the existing capacity, there is no need to import. We will also be able export LPG cylinders to other countries through value addition," he said.

In recent years, local manufacturing of LPG increased as more companies joined the foray to profit from the growing demand for bottled gas for cooking and small industries because of the fast-depleting reserves of natural gas, unavailability of firewood, rising income of consumers and rapid urbanisation.

Bangladesh now annually uses 10 lakh tonnes of LPG.

A decade ago, in 2009, LPG use was just below 50,000 tonnes, according to the energy and mineral resources ministry and various industry operators.

Currently, two dozen companies are operating in the bottled gas business, mainly by importing LPG.

A section of operators also import LPG cylinders. However, the quantity of imports declined in recent years.

Data from the Department of Explosives showed that LPG cylinder imports dropped 44 per cent to 22.30 lakh units in fiscal 2018-19 from 39.60 lakh units the previous year.

The number of locally made cylinders marketed increased 85 per cent to 20.30 lakh units in fiscal 2018-19 from 11 lakh units the previous year, says data from the explosives department.