Sugar mills fork out additional sales tax of Rs32.5 billion

KARACHI: Sugar mills have sustained the burden of additional sales tax cost of approximately Rs13 billion per annum for two and half years due to disparity in taxation values, their association said on Wednesday.

“The (sales tax exclusive) average Ex-mill price in September 2016 was around Rs57 to 58/kilogram, which was even lower than the minimum sales tax (exclusive) value fixed by the FBR -- Rs60/kg,” Pakistan Sugar Mills Association (PSMA) said in a statement. “This means that the mills had to pay sales tax on higher notified sugar value although ex-mill (exclusive) prices were much lower and remained depressed -- average exclusive price Rs47/kg to Rs51/kg – until June 2019.”

PSMA said the value of sugar fixed under statutory regulatory order (SRO 812(l)/2016) is a minimum value as defined under the second proviso to clause (46) of section 2 of Sales Tax Act 1990.

“This means that in either case sales tax shall be paid on higher of the value,” it said. “The basic purpose of this (SRO) notifying the fixed minimum value of sugar was to ensure maximum collection of tax irrespective of ex-mill sugar price.”

Under Sales tax Act 1990, the mills are required to pay sales tax on higher of the ex-mill price or notified value fixed by the Federal Board of Revenue (FBR), irrespective of its retail price.

PSMA said sugar industry has been paying sales tax on higher values in accordance according to the law as “no violation was ever reported by the concerned tax authorities”.

A senior FBR official told The News last week that 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.”

Rehmatullah Khan Wazir, former member Inland Revenue (Policy) of FBR told The News last week that the sugar value 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.”