Sugar price increases by Rs 5-6 per kg

Despite applicability of reduced rate of 8 percent sales tax on sugar, the failure of the government to properly regulate prices of this commodity would result in further price fluctuation in spite of presence of sufficient stocks of the commodity in the country.
Official sources told Business Recorder here on Saturday that the sugar prices in the domestic market are stable for the last three weeks. Sugar prices increased by Rs 5-6 per kg during the first week of current month when Pakistan Sugar Mills Association informed the government that sugar production will remain below the expected target of 5 million tons due to frost which damaged the cane crop. Second reason of increase in prices was putting Indian sugar on negative list.
An official of Ministry of National Food Security and Research argued that there is no proper mechanism to check irrational price increase of any commodity in the market as a consequence of hoarding and profiteering by the unscrupulous who take full advantage of minting money at the expense of helpless consumers. Punjab has crushed 2.7 million tons of sugar, Sindh 1.027 million tons and Khyber Pakhtunkhawa 0.275 million tons so far while the crushing season would end by the end of March in the country, he said.
Sugar was available at Utility Store Corporation (USC) at Rs 48 per kg and Rs 58 to 60 per kg in open market. But due to price manipulation strategy by hoarders' price of sugar may further increase, he said. When contacted, a tax official said that the government revised the sales tax on sugar downward last year when the government had taken taxation measures for generating additional revenue of Rs 53 billion for the remaining period of 2011-12. Through notifications, the FBR rescinded SRO.564 (I)/2006 whereby sales tax was charged on sugar at the rate of Rs 28.88 per kg.
The FBR has used 'deemed price mechanism' for the fixation of the value of sugar for the calculation of sales tax under the rescinded SRO.564 (I)/2006. Now, the sales tax has been assessed on the actual market price of sugar. The rate of sales tax on sugar would remain unchanged at 8 percent. The assessable value of Rs 28.88 was creating a market distortion since ex-factory prices range between Rs 50 and Rs 60.
Resultantly, the incidence of sales tax has been substantially increased on the commodity. Due to sales tax assessment on the actual market price of sugar, the incidence of sales tax is more than double. However, if the ex-factory price of commodity would decrease, the incidence of sales tax would automatically come down. The tax component has been increased following withdrawal of fixed assessment value of sugar for the purpose of sales tax. With the withdrawal of concession on sales tax the impact on the retail price of sugar has been subsequently increased.
Sources added that during last year the FBR 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 price of the commodity. Tax authorities had proposed restoration of 16 percent standard sales tax on sugar. The government had reduced sales tax on local supply of sugar from 16 percent to 8 percent which led to over Rs 1.75 lower revenue collection. Secondly, directives were issued from the highest level to maintain prices of sugar. Despite all measures price of the commodity was not controlled which reflects that multiple factors are at work to determine the sugar price.
Ibrahim Mughal Chairman Agri-Forum Pakistan said that due to poor check of the regulators in the country, prices of commodity have increased. "If the regulators fail to play their role price of sugar would further jump in the country", he said and added that another reason for the increase in price of sugar is the government's failure to achieve expected target of 5 million tons. Total production of sugar in the year 2011-2011 is 4.4 million tons, he averred.
Ibrahim further revealed that for the fresh crop millers purchased sugar cane at Rs 100 per maund against the fixed price of Rs 150 of per mound. He rejected the impression that the prices of the commodity have increased due to smuggling of sugar to Afghanistan and Iran. Despite several attempts, Javed Kayani chairman Pakistan Sugar Mills Association (PSMA) was not available for comments till the filing of this report.