Some unscrupulous sugar wholesalers and dealers have reportedly tailored a plan to increase the commodity''s price by up to Rs 10 per kg under the guise of an increase in Federal Excise Duty(FED) from 8 to 17 percent in General Sales Tax (GST) mode , well informed official sources told Business Recorder. "The government has not revised FED on sugar in the federal budget 2013-14 at all and we don''t understand on what grounds prices are being increased," the sources added.
According to sugar mill owners, only speculators are supportive of a price rise that breaks all barriers. Nothing is mentioned in the Finance Bill 2013 with regard to revision of FED rate on sugar; and an official Federal Board of Revenue (FBR) document titled "implementation through Finance Bill" notes the following: "Revision of FED of sugar. All products are chargeable to sales tax at the rate of 16 percent or FED at the rate of 16 percent but preferential treatment has been extended to sugar by imposing FED at the rate of 8 percent. This may be revised to standard rate".
"This was a proposal from the FBR and discussed at a meeting on June 2, presided over by the then presumptive Finance Minister, but it was not made part of the Finance Bill," the sources claimed. The sources said 70 percent of sugar is consumed by the industrial sector including beverages industry, bakeries and hotels that claim input adjustment.
"However, we do not understand which power elements are bent upon increasing sugar prices by Rs 10 per kg in the open market," questioned an official of FBR on condition of anonymity. Sugar industry sources have proposed that fixation of FED rate at two rupees per kilogram would generate Rs 13 billion revenue. Both the FBR and sugar industry are inching towards an agreement on capacity-based taxation and as the pact is finalised new tax regime on sugar industry will commence.
FBR has introduced the concept of capacity-based taxation in the Sales Tax Act 1990 in federal budget 2013-14 on the recommendations of sugar industry. Some sugar mills are allegedly involved in tax evasion which distorts the market as well as places an extra burden on taxpayers.
Federal government had allowed export of 1.2 million tons to sugar industry out of which approximately 0.8 million tons of sugar has been physically exported and contracts for 400,000 tons are registered with State Bank of Pakistan (SBP). In view of the surplus in the international market, Pakistani millers are finding it difficult to offload sugar stocks. At present, the London international price is hovering around $475 per ton and this rate has almost been the basis for offers for Pakistani sugar.
It has been learnt that sugar is being sold at a lower price than the London market price. Millers who are located in Sindh are selling at $460 per ton FoB Karachi with the intent to retrieve 1.75 per kg of the inland freight subsidy already announced by the government besides availing 7.5 percent exemption of Federal Excise Duty. The net price which is being retrieved against export is around Rs 45 ex-mill which hardly covers the cost of sugarcane for almost 90 percent of the sugar industry. Price of sugarcane was also increased from Rs 150 to 170 per 40/kg which also drove the cost of producing sugar.