The Federal Board of Revenue (FBR) has failed to workout an effective mechanism for checking the sugar industry's tax evasion as unregistered buying and selling of sugarcane at illegal weighing scales (kundas) is setting new record this year.
Unregistered buying of sugarcane is hurting the government and the growers equally. It deprives the government from its rightful revenue and the growers whom middleman pays lesser price in the name of urgent payment, besides dodging in weight of the crop.
Sources said tax evasion and out of books sugar production was all time high in Sindh and southern part of Punjab where recovery rate was comparatively higher than other parts of Pakistan.
The middlemen are buying sugarcane illegally on the roadside weighing scales for bringing it later on to the mills without showing it in the indent books for assessment of tax.
After passing the stage of indent books, there is no system in sugarcane purchase to check if the sugar mills were paying actual sales tax on production or not. The sugar produced from unregistered sugarcane is produced to the market without any tax. Unregistered sugarcane purchase and sugar produced from it results in tax evasion of rupees three plus on one kilogram sugar even at the current rate. This surely provides an edge to dishonest over the fair tax payer units and disturb the market mechanism.
The sources claimed that historically low sugar prices were encouraging the millers to indulge in tax evasion and lesson their possible losses from crushing. This trend was likely to continue as the FBR, the monitoring agency, seemed helpless in coping with the issue of tax evasion, said the sources.
Sugarcane buying and selling was noted during the last crushing season at the highest level and the FBR was directed by former Prime Minister Shaukat Aziz to work out a strategy to ensure that the mills do not buy sugarcane from the growers out of the mills' gates through the middleman.
The FBR authorities conceded in more than one meetings that in some areas, the mills indulged in illegal buying of sugarcane and produced sugar without showing it in the record. The buying of sugarcane through the middleman is a technical cheating of the system. It provides the mills a tool for tax evasion.
It is not the matter of tax evasion only. It, rather, makes the entire sugar sector chain sick. It slows down off-loading of the stocks of the honest mills and pose them serious risk by blocking the sale of their stocks in the open market.
The sugar prices are historically low these days. The Pakistan Sugar Mills Association (PSMA) is continuously informing the policy-makers of glut like situation and its repercussions on the sugar sector chain as a whole.
Its delegation held a meeting with caretaker Prime Minister Mohammedmian Soomro recently in Karachi and presented him a gloomy picture of the industry. The delegation demanded of the Prime Minister some corrective measures to protect the industry and other stakeholders of the sector from a complete devastation. But they were disappointed by the response when were asked by the Prime Minister to see towards the Secretaries Committee for solution of their problems.