Government likely to bar sale of molasses to unregistered persons

The government is likely to bar sale of molasses to unregistered persons and deduction of input tax in respect of sales made to such persons, well-informed sources in FBR told Business Recorder.
Finance Minister Asad Umar, who is also chairman of the ECC and a critic of sugar industry, had directed the Board to gather tax evasion details of sugar mills and submit them in the next ECC meeting. On October 2, 2018, Commerce Division informed the ECC that export of sugar is banned under the Export Policy Order 2016 to ensure adequate supply of sugar at reasonable price in the domestic market. However, the last few years have seen production of sugar in Pakistan surpassing its consumption, which created a surplus in the market. Hence, specified quantities of surplus sugar had been allowed for export during the last few years to provide liquidity to the sugar manufacturers, enabling them to make payments to sugarcane growers in a timely manner.
The FBR, in its report submitted to the ECC, has stated that sugar industry is one of the major industries in Pakistan having significant tax potential. Although the industry contributes substantially to sales tax revenue, yet there are reports of massive leakages in this industry. These include posting of monitoring staff at factories in exercise of powers under Section 40B of the Sales Tax Act, 1990. The results, however, have not been encouraging.
One of the ECC participants told Business Recorder that there was a clear discrepancy in the figures shared by the Board.
According to FBR, cane molasses is a major byproduct of sugar industry. It is either exported by sugar industry or sold locally or converted to ethanol by sugar industry by itself. "If the production and sale of molasses is properly recorded, it can be used as an indicator to gauge the production of sugar too. This shall assist in documentation of sugar industry as well," the sources quoted chairman FBR as saying.
The FBR, sources said, is of the view that one way to capture sales of an item is to bind the suppliers/ persons registered under the Sales Tax Act, 1990, to sell taxable goods only to registered persons. Sub-section (6) of section 8 of the Sales Tax act, 1990, empowers the federal government to notify goods or class of goods which a registered person cannot supply to a person who is not registered. Further, the federal government in exercise of its powers under clause (b) of sub-section (1) of the section 8 can also be specify good in respect of which deduction of input tax can be made. In exercise of these provisions, the federal government has issued a notification on June 12, 2014, specifying goods which shall not be sold to a person who is not registered under the said Act and if sold such person shall not be entitled to deduct input tax in respect of such supplies.
Accordingly, the FBR has proposed that the federal government in exercise of powers may add cane molasses to the list of items in the SRO 448(1) 2004 of June 12, 2014, thereby barring its sale to persons not registered and also barring the deduction of input tax in respect of sales made to such persons.