Sugar reduced GST rate results in losses of billions

More than Rs2.5 billion in revenue is being lost on a monthly basis by the FBR because of decreased GST collection.

ISLAMABAD: More than Rs2.5 billion in revenue is being lost on a monthly basis by the Federal Board of Revenue (FBR) because of decreased general sales tax (GST) collection from sugar mills. Increasing the assessment value of sugar from Rs29 to Rs35 per kilogramme and reinstating the regular general sales tax rate are remedial measures being considered by the FBR.

According to an FBR official, sugar mills are currently being charged GST at the rate of eight per cent, compared with the usual rate of 17 per cent, on an assessment value of Rs29 per kilogramme. The resulting decrease in revenue has been around Rs2 billion per month.

Furthermore, the FBR is suffering a loss of between Rs500 and Rs700 million due to the continued assessment of sugar at a value of Rs29 per kilogramme, added the official. “This brings the total losses in revenue to around Rs2.5 billion,” he explained.

The rate of sales tax on sugar had previously been cut by half in order to stabilise the price of commodity.

The FBR plans to approach the ministry of finance with the proposition that despite lenient tax regulations for the sector, the price of sugar has remained incredibly high and hence taxation on the sector should be regularised to avoid further losses in revenue.

The official shared that permission for restoration of the standard GST collection on sugar had been sought from the Economic Coordination Committee (ECC) but the ECC had disallowed this request fearing an increase in sugar prices.

According to a study conducted by the FBR, the average price of sugar in the open market is between Rs80 and Rs85 per kilogramme. The official pointed out that even if the price of the commodity touches Rs100, GST can only be levied on the assessment value of Rs29 per kilogramme.

Published in The Express Tribune, September 2^nd, 2010.