FBR sustains Rs17 billion revenue loss on sugar sales in January-September

KARACHI: The Federal Board of Revenue (FBR) has sustained at least Rs17 billion in revenue loss from sugar sale during the past nine months as the sweetener market price remains higher than the value set for the taxation purpose, sources said on Thursday.

Sources said the revenue was estimated to have been lost on domestic sale of refined sugar that could have been saved if the value of the commodity were linked with the consumer price.

The FBR fixed sugar price at Rs60 per kilogram for the purpose of sales tax collection.

The average price of per kilo sugar was Rs75.7 per kg in January and it gradually increased over the time and reached at Rs94.9/kg in September, according to the Pakistan Bureau of Statistics. Therefore, sales tax on above price of Rs60 per kg was either pocketed by sugar mills or drained due to ill planned policy of the FBR.

In the open market, the price of sugar for the end-consumer is around Rs110-115/kg. The ex-mill price is around Rs91-95/kg. Sugar mills are collecting sales tax at 17 percent at the ex-mill price but FBR gets only sales tax on Rs60/kg, according to the sources.

“Sales tax losses would come much higher if past years are also taken into account,” a tax official said.

The FBR fixed the value of sugar at Rs60/kg for collection of sales tax through a statutory regulatory order (SRO 812(I)/2016). Interestingly, when the price was fixed in 2016 the average price of sugar was around Rs67-71/kg.

The annual collection of sales tax from sugar increased 55 percent to Rs41.22 billion in the last fiscal year.

Rehmatullah Khan Wazir, former member Inland Revenue (Policy) of FBR said the value of the commodity was fixed to save consumers from price hike. The fixation of price was also demanded by sugar mills, Wazir said.

“The present sugar price is considerably high and fixation of value is now meaningless,” he said. “Sales tax should be applied on retail price as in case of goods falling in other sectors of the economy.”

A senior FBR official said the tax evasion in the sugar sector is massive due to large supply made to the undocumented sector.

“The FBR high-ups are silent over the issue of fixation of sugar price for sales tax despite the fact the retail prices of the commodity sky-rocketed,” the official said, requesting anonymity. “The sugar mills are charging sales tax at Rs60 per kg and depositing to national exchequer. But revenue drain is evident from the latest price quoted by the government agency.”

The official further said if the sales tax loss is Rs17 billion then it means around Rs100 billion stock of sugar has not been taxed. If this supply is added to income then the estimated loss of income tax comes at around Rs29 billion.

The FBR official said the quantum of income tax loss cannot be determined without examination of monthly sales tax returns and annual income tax returns of sugar mills.

The government, through Finance Act 2019, increased the rate of sales tax from 8 percent to 17 percent on the fixed value of Rs60/kg. The increase in sales tax was implemented from July 1, 2019 and the increase was 112.5 percent.