New sugar tax

The government decision to revise the minimum sugar price for sales tax purposes raises significant concerns over its implications for both consumers and the broader economy. By increasing sugar prices under the guise of generating revenue, the government is not only burdening consumers but also demonstrating a lack of innovative thinking in addressing fiscal shortfalls.

With the new minimum price set to rise by Rs10 to Rs15 per kilogram, the government anticipates an additional Rs90 billion in annual taxes, taking total sugar sales tax revenue past Rs200 billion. On the surface, this may appear to be a reasonably significant number that could help bridge the widening revenue gap, but it fundamentally overlooks the consequences of imposing higher taxes on essential commodities.

The essential nature of sugar means that any increased cost will disproportionately affect lower-income families, exacerbating existing inequalities.

Any tax on sugar is functionally a regressive tax that penalides those who can least afford it while conveniently ignoring more equitable fiscal solutions. Reliance on such revenue measures also signals the government's admission of failure to address the systemic inefficiencies behind its inability to increase direct tax revenue or implement other meaningful tax reforms. Instead of taxing billionaires a little more, the government is imposing billions in taxes on the poor.

It is also worth noting that the increased tax comes at a time when the government is seriously considering removing all trade barriers on sugar, which could introduce more volatility in consumer prices and, in turn, tax revenue. A heavily taxed free sugar market could also see domestic producers exit as they struggle to compete with imports from countries that are able to keep prices consistently low.

Rather than creating additional burdens on consumers, a more progressive approach to tax reform focused on enhancing compliance and broadening the tax base would better serve the economy and promote fairness.