FBR deputes officials at eight sugar mills to tack tax avoidance

KARACHI: The Federal Board of Revenue (FBR) has deputed tax officials at eight sugar mills in Sindh to monitor inventories following reports of revenue leakages, sources said on Saturday.

Sources said the Large Taxpayers Unit (LTU) Karachi, FBR’s major revenue collection arm, has posted tax officials at eight sugar mills within its jurisdiction in Sindh to monitor the arrival of raw material, production and supply.

They said that the FBR had detected huge mismatch between sugar production from sugarcane and the subsequent supply to the market.

It was worth mentioning that the FBR had imposed ban on invoking Section 40B of Sales Tax Act, 1990 without

definite information of tax evasion and prior approval from the chairman or members.

According to the sources, examination of the past years data of these eight sugar mills revealed that they declared lower production, but the record of their supplies gathered from third party was much higher.

As per Section 40B of the Act, tax officers can be posted at the premises of registered person or class of such persons to monitor production, sale of taxable goods, and the stock position.

LTU Karachi had submitted information of concealment to the FBR chairman and member operations, sources said, adding that the competent authority has allowed deputing officers at the premises of the sugar mills.

The FBR conducted analysis of sugar production of last year which revealed huge tax evasion by sugar mills.

The outcome of analysis showed that FBR and the cane commissioner of the three provinces had a difference of 641,000 tons, which showed that the sugar mills were under-reporting their stock in order to evade tax payments.

It was also identified that local supplies during the tax period of July 2019 fell by 255 percent due to enhancement in tax rate from eight percent in June 2019 to 17 percent in July 2019.

The analysis further revealed that the stock holding last year ending June 2018 was 3,147,000 tons whereas closing stock of the year ending on June 2019 was only 2,230,778 tons, which showed 29 percent decline.

It was also pointed out that sugar manufacturers had declared high quantity of supplies during June 2019 to evade sales tax as the tax rate was to increase in July 2019.

The FBR analysis revealed that sugarcane was the biggest raw material of sugar industry.

The undocumented/under-documented nature of this agriculture sector poses a great challenge to accurately gauge the quantity of sugarcane produced and supplied to a particular mill.