The Federal Board of Revenue (FBR) has rejected a proposal of sugar industry to collect sales tax/excise duty on capacity basis of sugar mills as industry refused to assure 25 percent growth in revenue after replacing taxes with fixed levy.
Sources told Business Recorder here on Sunday that the Board has examined proposal of a new kind of taxation on sugar industry to collect sales tax/excise duty on capacity basis of the units. When FBR asked whether the industry will show annual growth in revenue after replacing taxes with 'capacity tax', the industry has not given any assurance to the tax authorities. In case of beverage industry, they assured at least 25 percent annual growth in revenue. Thus, the idea of 'capacity tax' on sugar industry has been dropped.
Background of the issue revealed that sugar industry has always been meted out a preferential and favourable treatment for tax purposes. All goods are chargeable to sales tax or FED at standard rate but sugar is currently chargeable to 8 percent FED. Additionally, local supply of sugar equivalent to the quantity exported is chargeable to Federal Excise Duty at a further reduced rate of 0.5 percent. This special tax treatment results in loss to the exchequer and leads to undue enrichment of sugar manufacturers at the expense of exchequer.
The FBR was of the opinion that special treatment of sugar sector may be abolished to bring it at par with all other sectors and to achieve this goal the rate of FED on sugar should be increased to the standard rate of 16 percent. However, the commodity would remain chargeable to FED at existing rate of 8 percent.
Sources said that sugar industry has intimated that some of the sugar manufacturers are indulged in evasion which distorts the market as well as puts extra burden on fair taxpayers. To arrest the menace of evasion, the FBR placed sugar industry under supervised clearance in February, 2013 which positively contributed towards revenue collection. In order to curb this evasion some members of the industry have proposed that tax/duty on sugar may be charged on capacity basis so that all sugar mills are equally taxed with no room available for evasion or leakage of revenue.
Sources said that the average collection from sugar industry is Rs 11,350 million per annum. The calculation has been based on the year when either sugar was assessable on a very low value from Rs 25.50 per kg to Rs 28.88 per kg or was chargeable to reduced rate of 8 percent of sales tax or FED which makes it even less than 50 percent average collection from this sector as compared to the standard rate of sales tax or FED chargeable on all other goods. However, for the sake of calculation, even if it is assumed to be 50 percent collection from sugar sector, the estimated increase of revenue collection by enhancing the rate of FED on sugar from 8 percent to 16 percent will be around Rs 11 billion per annum. Any proposal of the sugar industry to collect FED on production capacity basis must ensure collection equivalent, if not higher, to the collection estimated under increase from 8 percent to 16 percent, they added.
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