Sweet fortune: Sugar mills throw dust into govt’s eyes by ‘evading’ billions in taxes

After a prolonged sugar shortage scandal that rattled the country from top to bottom, the federal government has allegedly failed to curb tax evasion by more than 20 sugar mills in Punjab, Sindh and Khyber Pakhtunkhwa.

The sugar mills in question have carried out alleged sales tax theft in billions of rupees. A spokesman for the Federal Board of Revenue, Nadeem Rizvi, told The Express Tribune that the sugar mills are being closely monitored and action would be taken against the tax evaders in accordance with the law.

Due to high purchase prices caused by tax-evading sugar mills, other mills also had to hike rates for the sake of competitiveness. The domino effect led to a record high price of sugarcane, which is now selling at Rs300 per maund.

In continuation of the trend, it is being speculated that sugar prices will rise sharply in the next few weeks.

At the heart of the matter, lies the tumultuous system of buying and selling sugar through unregistered, tax-evading sugar dealers across the country.

Under the immense government pressure to meet the shortage, sugarcane crops were harvested without "maturing" this season.

The pre-mature crushing season caused a decline in the recovery rate of almost 1%, following which the total sugar production is expected to decrease by 200,000 to 300,000 tonnes.

The government has fixed a formula for determining the sales tax under which if the ex-mill price of sugar is Rs60 per kg, it bears a sales tax of Rs10.20 at the rate of 17%. At present, sugar is being sold at an ex-mill price of Rs85, having a sales tax rate of Rs12.35. However, it has emerged that the tax-evading mills are dodging taxes by showing lesser ex-mill prices.

One maund of sugarcane makes about four kilogrammes of sugar. In the context of tax evasion, an estimated margin of Rs50 is achieved per maund, which these mills use to buy more sugarcane at exorbitant prices, causing a rise in the price of sugarcane in the market.

At present the minimum price per maund is Rs270, while the maximum is Rs300. Due to the prevalent situation, even the taxpaying mills have to participate in the price war to buy sugarcane at these rates. The resultant rise in the sugar prices has put an additional burden on a general consumer.

The price of sugar in the world market has also increased significantly and at present, raw sugar reaches Pakistan at a cost of $407 dollars per tonne. After processing, the ex-mill price of this sugar is around Rs93/kg.

Sources in the milling industry and business circles have claimed that about 20 out of 89 sugar mills in the country have been involved in massive sales tax evasion, allegedly in connivance with the FBR representatives.

According to sources, federal Minister for Industries Hamad Azhar had earlier called a meeting of all sugar mills’ owners. The minister urged the mill owners to reduce the price of sugar. In response, a few mill owners drew attention to the issue of sales tax evasion, but an FBR representative shot down the possibility.

"We have deployed our officers at every sugar mill under Section 40-B (of the Sales Tax Act),” he had said.