Govt rejects 25% duty on sugar import

ISLAMABAD: The government has rejected outright a proposal to slap a 25 per cent regulatory duty on sugar import, which, it believed, was designed to artificially increase prices of the commodity in the local market.

The decision was made at a meeting of the Economic Coordination Committee of the Cabinet (ECC) on Tuesday. The proposal was put forth by the Ministry of Industries and Production.

A participant of the meeting told The Express Tribune that the ECC rejected the ministry’s summary for levying of a 25-per cent regulatory duty on the import of sugar with a direction that such anti-consumer proposals should not be brought to ECC meetings in the future.

The government also did not withdraw a 50 per cent tax exemption on the sale of sugar despite insistence from the  Federal Board of Revenue (FBR) that the aim of giving the exemption had not be achieved as sugar prices have not come down. The exemption would cost the government Rs24 billion next year. The ECC also did not allow a change in the mechanism of calculating sales tax. The government is still charging sales tax at Rs28 per kilo at factory rate while the sweetener is sold at over Rs60 per kilo in the market.

The ECC, headed by Finance Minister Dr Abdul Hafeez Shaikh, also upheld its earlier decision of meeting the domestic sugar demand of 1.2 million tons through import by the Trading Corporation of Pakistan (TCP).

The decisions relating to regulatory duty and import will be a setback for the Pakistan Sugar Mills Association (PSMA), which has launched a vicious campaign aimed at compelling the government to impose regulatory duty in order to maintain high prices of the commodity.

PSMA Chairman Iskandar Khan said that the association wanted a 25 per cent regulatory duty only on commercial and industrial sugar imports. “Price of imported sugar is now less than the local production and as a result mill owners may not be able to payback farmers’ dues,” he added. Three million tons of sugar was produced this year and the TCP has already issued tenders for the import of 900,000 tons.

Khan said that commercial importers were importing sugar more than their needs and they were flooding the market with imported sugar.

This year, sugarcane production remained at 49.4 million tons – a decline of 1.3 per cent over the last year. Resultantly, sugar production also declined to 3 million tons against a demand of over 4 million tons.

The government also rejected a summary to withdraw the facility of a 50 per cent tax relief on the sale of sugar. In August last year, the government had decided to reduce the Sales Tax rate by half to 8 per cent in order to provide Rs3 per kilo relief to consumers.

The finance ministry said that the Punjab government strongly opposed the move of withdrawing the facility, fearing that it might result in public backlash in the backdrop of people’s anger over the increase in the sales tax rate in the budget. An official said that the ECC decision to continue with a 50 per cent exemption on sale of sugar would cause Rs24 billion revenue loss in the next financial year. “The government has already taken a hit of Rs15 billion on this account over the last nine months,” he added.

The ECC also rejected a proposal to calculate sales tax on sugar at the market rate against the existing mechanism of charging the tax at Rs28 per kilo. The official said the move again failed on the same grounds of increase in the commodity prices in the open market.

The ECC also constituted a committee to monitor white sugar prices in the international market. The committee would comprise representatives of the ministry of industries and production, Federal Board of Revenue and the ministry of commerce.

The ECC could not take a decision on the judicial commission’s recommendations regarding a review of the petroleum products’ pricing formula. The commission has recommended the government to review the pricing formula, which, at present, favours of oil companies. Petroleum Secretary Kamran Lashari said the meeting was called off before the scheduled time and the matter wasn’t discussed.

According to a handout of the finance ministry, the ECC deferred the summary of reducing gas supply to fertiliser companies and its implications for the industry. Hafeez Shaikh directed the ministry of industries to raise the matter in the forthcoming Energy Conference.

Published in the Express Tribune, June 9^th, 2010.