The Pakistan Sugar Mills Association (PSMA) has strongly criticised the Ministry of Industries for estimating unrealistic sugar production cost, leading to the fixation of sugar procurement price at Rs 60 per kg, sources in the Ministry told Business Recorder.
Sources said that the PSMA, in a letter to the Ministry, expressed deep concern over the Ministry's statement on domestic sugar prices in the media. Ministry of Industries, in its official statement maintained that sugar price is being raised on the plea of 'federal excise duty'. However, the factual position is that white sugar was allowed two concessions till March 2011. First, the assessed sugar price per kg was fixed at Rs 28.88/kg. Second, sales tax levied was 8 percent of this fixed assessable value.
In March, 2011, the assessable value was taken as the 'market value', while sales tax was still levied at 8 percent, or approximately half the sales tax levied on other items. Now, sugar has been exempted from sales tax through Financial Act 2011 and only 8 percent federal excise duty has been imposed. Moreover, 2.5 percent SED has also been abolished, as for all other items. As such, if ex-mill price is taken as Rs 60/kg then the 8 percent FED will be Rs 4.80/kg.
The increase in sugar price is totally unjustified as the sugar mills have already increased the ex-mill price to the tune of Rs 6.30/kg (sales tax 8 percent and central excise duty @ 2.5 percent) since March 2011. However, PSMA argued that the Ministry must recall that during a meeting on May 16, 2011, effort was made to determine the production cost of sugar, where PSMA representatives submitted its average production cost at Rs 64 per kg, based on the cost of sugarcane already paid for without sales tax or excise duty.
This was a fair price to support and ease the procurement through TCP and to facilitate payments to growers. The industry is to bear the financial carryover cost of sugar stocks by one rupee per month also, sources added. On the other hand, officials of Minfa (now devolved) and others calculated an unrealistic production cost of Rs 54 per kilo, based on official support price of sugarcane announced by the provincial governments, sources quoted the PSMA as claiming in the letter.
Based on the same assumption, TCP was advised to procure sugar through tender with upper limit fixed at Rs 60 per kilo, in violation of CCP rules. To start with, the fixation of upper limit of sugar price on an assumed price of sugarcane is denying the procurement offer and against the ethics of free trade," sources quoted as PSMA as saying.
According to sources, sugar mill owners maintain that the Association agrees that unrealistic price hike is unjust, but PSMA or its members have never influenced the price which, in fact, is an outcome of market forces. When contacted, Chairman of PSMA, Javed Kayani, confirmed that a letter has been sent to Secretary, Industries, and expressed concern over what he called 'unrealistic' statement by the Ministry. "We had offered the government to procure 0.4 million tons of white sugar from the mills which will be used to pay growers," he added.