The decision to withdraw the facility of 8 percent GST on sugar allowed during Ramazan and ending the practice of fixing assessable value of sugar, expected to be taken by the Economic Co-ordination Committee (ECC) on Thursday (tomorrow), would increase sugar price by about Rs 5 per kg in the retail market, sources close to the Secretary Industries told Business Recorder here on Tuesday.
The two decisions would be taken by the ECC on a proposal of the Federal Board of Revenue with the support of Prime Minister's Advisor on Finance, Dr Abdul Hafeez Sheikh, who is also chairman of the ECC, sources added.
However, the Ministry of Food and Agriculture (Minfa) has opposed the proposal with the comment that the proposed withdrawal of concessions be deferred for the time being and taken up when the sugar crisis is over, the sources added.
In order to implement the court order to ensure availability of sugar to the general consumer at Rs 40 per kg at retail stage, the rate of sales tax on sugar was reduced from 16 percent to 8 percent on August 23, 2009. To keep sugar prices uniform and lower in the local market, the government has also been engaged in fixing the price of sugar through manipulating sales tax since June 5, 2006 through the following notifications:
SRO 1269(1) 2006 December 27, 2006 assessable value Rs 25.50 sales tax incidence Rs 3.8 per kg, market value Rs 30 per kg. SRO 126(1) 2007 February 14, 2007, assessable value Rs 24 per kg, sales tax Rs 3.6 with market value Rs 29.10, SRO 1195(1) 2007 December 10,2007, assessable value Rs 21, GST Rs 3.15, market value 24.50 per kg, SRO 337(1) 2008 April 2, 2008, assessable value Rs 19 per kg, sales tax Rs 2.85 per kg, market value Rs 23.40, SRO 510(1) 2008 June 5, 2008, assessable value Rs 21.50 per kg, GST Rs 2.80 per kg, market value Rs 24.50 per kg, SRO 796(1) 2008 July 29, 2008, assessable value Rs 24.57 per kg, GST Rs 3.93 per kg, market value Rs 29.50 per kg and SRO 04(1) 2009 January 2, 2009, assessable value Rs 28.88, GST Rs 4.62 indicating a market value of Rs 33.50 per kg.
The sources revealed that the present assessable value of Rs 28.88 per kg was fixed on January 2, 2009 which, after including the sales tax at 16 percent ie Rs 4.62 per kg, was equivalent to Rs 33.50 per kg as ex-mill price. Similarly, the existing price of $440 per ton of imported sugar was fixed vide SRO 563(1) 2006.
After expiry of the Supreme Court's orders about availability of sugar to general consumers at Rs 40 per kg on November 30, 2009, the sugar prices at retail stage have crossed Rs 60 per kg. This has happened despite the fact that the government is charging sales tax at 8 percent instead of 16 percent and on value of Rs 28.88 per kg for domestic sugar and $440 per ton imported sugar, sources said.
According to sources, these incentives are adversely effecting the sale tax collection from sugar and the government has lost an estimated Rs 6.582 billion revenue during August 2009 to February 2010 as follows: (i) Loss of Rs 3.982 billion revenue on account of reduced rate of sales tax ie at 8 percent effective August 23, 2009 and; (ii) presumptive revenue loss of Rs 2.6 billion on account of average market price since July 1, 2009 which remained at Rs 40 per kg up to November 30, 2009 in the light of Supreme Court's decision and has remained in excess of Rs 60 per kg since October 1, 2009.
"To stop constant loss to sales tax revenues and to achieve sales tax targets in the remaining months of the current financial year, the FBR has proposed that the facility of reduced rate of 8 percent GST may be withdrawn by rescinding SRO of August 23, 2009 and the normal rate of 16 percent GST on sugar be restored," sources added.
It has been further proposed that the facility of assessment of sales tax at the fixed value of Rs 28.88 per kg in case of locally produced sugar and $440 per ton for imported sugar are proposed to be withdrawn. Consequently, the sugar will be assessed to sales tax at the normal values under respective provisions of the Sales Tax Act, 1990.