The government is planning to charge fixed amount of sales tax on sugar from 2016-17 replacing sales tax with 8 percent Federal Excise Duty (FED) on import and local supply stages in coming budget. Sources said on Monday that the proposal under consideration is to fix value of sugar on per kg basis for charging sales tax by sugar mills taking into account standard rate. The sales tax value may be fixed between Rs 50-55 per kg. For this purpose, sales tax may be levied at the standard rate on the basis of fixed value of sugar.
Last year, the Federal Board of Revenue (FBR) had proposed enhancement in the rate of FED on sugar or standard rate of 17 percent sales tax on sugar by abolishing 8 percent excise duty on the commodity. However, both the proposals of the FBR were rejected during last fiscal budget preparation exercise. During the last few years, the FBR repeatedly attempted to raise sales tax/FED on sugar but unable to get it approved from the policy markers, sources explained.
Sources said that different concessionary regimes remained applicable on sugar instead of imposing standard rate of 17 percent sales tax. In the past sugar was subjected to sales tax at standard rate on the basis of fixed value. Last the value of sugar was fixed at Rs 28.88 per kg vide SRO 4(I)/2009, dated 2.1.2009. However, from 23.08.2009, ad valorem sales tax@ of 8 percent was levied on local supply of sugar. Through Finance Act, 2011, FED @ 8 percent ad valorem levied on import and local supply.
Now it has been proposed to levy sales tax at standard rate of 17 percent by abolishing the existing concessionary rate of the FED on the commodity. In this regard, it is proposed that the sales tax may be levied at the standard rate on the basis of fixed value of sugar.
The FBR had proposed 6 percent non-adjustable Federal Excise Duty (FED) on sugar in budget (2014-15) to generate an additional amount of Rs 6 billion. In the past, the FBR had proposed reduction in the FED from 8 to 6 percent on sugar. However, it was proposed to replace 8 percent adjustable FED with 6 percent FED in non-adjustable (non-VAT) mode. However, the proposal of the FBR was rejected and not accepted by the Ministry of Finance.
At that time, FBR argued that the FED @ 8 percent (in VAT mode) was levied on sugar in lieu of sales tax. Despite half of the standard rate, input tax is being adjusted by the sugar industry on standard rate of 17 percent. Moreover, the input tax is also being claimed against fertiliser, building materials and other goods & services which are not directly used for the manufacturing of sugar. As a result of applicability of FED on sugar, most of sugar supplies are made to unregistered persons without payment of ''further tax''. The ''further tax'' was applicable on supplies to un-reregistered persons with the sales tax department but in case of sugar, FED was applicable on supply of the commodity. Thus, ''further tax'' was not applicable in case of sugar. Therefore, it was proposed to impose FED in non-adjustable (non-VAT) mode @ 6 percent on sugar.