The Federal Board of Revenue (FBR) will get nothing in the form of sales tax despite sizeable escalation in the price of sugar in the open market as the prevailing method of sales tax calculation is based on assessable value of the commodity. Sources told Business Recorder here on Tuesday that the method of sales tax calculation on the basis of fixed assessable value of the commodity allows the manufacturers to pay sales tax at the nominal price.
Recently, the price of sugar has been increased from Rs 70 to nearly Rs 90 per kg directly passing on extraordinary burden to the consumers. On the other hand, the assessment value for the calculation of sales tax was Rs 29 per kg which was fixed a few years back. Despite substantial increase in the price of sugar, the assessment value for the calculation of sales tax is still Rs 29 per kg, which is very low. Therefore, the increase will not give any benefit to the FBR, as increase in price would not correspondingly increase the percentage of sales tax charged on the commodity.
The FBR is already facing revenue loss of Rs 2 billion per month due 50 percent reduction in sales tax on sugar. The government had reduced the sales tax rate from 16 percent to 8 percent in August 2009, but this incentive did not reach the retail stage. Despite decrease in sales tax, the benefit was not passed on to the consumers.
In the past, the board had reduced assessment value from Rs 21 per kg to Rs 19 per kg on taxable supply of locally produced white crystalline sugar for calculation of sales tax. At that time, the board had accepted the demand of the sugar industry to reduce the incidence of sales tax on the locally produced sugar falling decrease in its prices in the local market. Now, the situation has entirely changed, and the price of the commodity has touched around Rs 90 per kg.
The FBR had repeatedly moved summaries to the Economic Co-ordination Committee (ECC) of the Cabinet to withdraw concessionary rate of 8 percent sales tax on sugar, as decrease in sales tax has failed to reduce the price of the commodity. The FBR wanted restoration of 16 percent standard sales tax on sugar. The rate of sales tax was increased from 16 percent to 17 percent in 2010-11, but the sales tax on sugar was not increased.
The government had reduced sales tax on local supply of sugar from 16 percent to 8 percent until further orders. Following PM's decision, the FBR immediately issued the necessary notification. The notification pertaining to the assessable value of sales tax was not rescinded. This decision was taken to reduce sugar prices in the local market, but reduction in sales tax did not help in reducing price of the commodity.
Sales tax on sugar was drastically cut to control the price of the commodity. Resultantly, the FBR suffered huge revenue loss due to reduction in sales tax. Secondly, directives were issued from the highest level to maintain prices of sugar. Despite all measures of the government, price of the commodity was not controlled which reflects that multiple factors are responsible for increasing inflation. Therefore, the FBR is persuading the government to restore sales tax on sugar through Ministry of Finance as well as the ECC.
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