ISLAMABAD: The government of Pakistan Tehreek-e-Insaf (PTI) has unearthed massive tax evasion by the sugar industry and is in the process of adding molasses to the list of goods that cannot be sold to unregistered persons in order to plug tax leakages.
Sources told The Express Tribune that it was brought to the notice of Economic Coordination Committee (ECC) of the cabinet in its recent meeting that sugar, according to the Revenue Division, was one of the major industries that had a significant tax potential.
Although sugar millers contributed substantially to the sales tax collection, there were still reports of massive tax leakages in the industry, the ECC was told.
It was pointed out that monitoring staff had been posted at sugar factories in exercise of powers under Section 40-B of the Sales Tax Act 1990. However, the results were not encouraging. Molasses is a major byproduct of sugarcane. It is either exported by the sugar industry, sold locally or converted into ethanol.
It was suggested that if the production and sale of molasses was properly recorded, the data could be used to gauge the actual sugar production. It would assist in documentation of the industry as well.
One way to capture sales of a product is to bind suppliers and people registered under the Sales Tax Act 1990 to sell taxable goods to registered persons only.
Sub-section (6) of Section 8 of the Sales Tax Act empowers the federal government to notify goods or the class of goods which a registered person cannot supply to a person who is not registered.
Furthermore, the federal government in exercise of powers under clause (b) of sub-section (1) of Section 8 can also specify goods in respect of which input tax cannot be deducted.
In line with these provisions, the government issued SRO 488(1)/2004 dated June 12, 2004, specifying the goods that would not be sold to a person who was not registered under the said act and if sold such person would not be entitled to input tax deduction in respect of such supplies. The Revenue Division proposed that the government, in exercise of its powers, may add molasses to the list of goods mentioned in SRO 488(1)/2004 in order to stop its sale to persons not registered under the Sales Tax Act and the deduction of input tax in respect of sales made to such persons.
The ECC considered the suggestion for ensuring payment of due taxes on molasses and directed the prime minister’s adviser on commerce, industries, production and investment and the Federal Board of Revenue (FBR) chairman to hold a meeting with the Pakistan Sugar Mills Association (PSMA) to seek its views on the proposals made by the Revenue Division.
The FBR may again take up the matter with the ECC only in the case of revision in the proposals, otherwise, the same proposals will be presented to the cabinet for its consideration.
Published in The Express Tribune, November 20th, 2018.