2019-20: ST collection from sugar doesn't reflect actual increase in revenue

The sales tax collection of Federal Board of Revenue (FBR) from sugar sector has increased by 62.3 percent during 2019-20, which is not proportionate to increase in sales tax rate from 8 percent to 17 percent in 2019-20.
The impact of sales tax on sugar prices at ex-mill/retail level has been elaborated in the report of inquiry committee constituted by Prime Minister Imran Khan regarding increase in sugar price. According to the report, the general sales tax (GST) in the financial year 2018-19 was 8 percent for filers and 11 percent for non-filers purchasing sugar from the sugar mills. But since majority of the buyers were non-filers so GST was charged at 11 percent in majority of the cases. In the current financial year 2019-20, the government has increased the GST to 17 percent across the board.
The report stated that the revenue of Federal Board of Revenue (FBR) from sugar sector, in term of sales tax, has increased 62.3 percent. The increase in revenue is not proportionate to increase in sales tax. The same increase in transferred to the consumers ultimately as it is included in the ex-mill price calculations of the PSMA.
According to the FBR's data on major revenue spinners, the FBR has collected Rs 16.3 billion during first half of 2019-20 from sugar sector against Rs 10.3 billion during the same period of 2018-19, reflecting an increase of 57.6 percent, FBR's figures said.
The FBR's Year Book (2018-19) disclosed that the sugar industry contributed Rs 26.6 billion sales tax (domestic) during 2018-19 against Rs 20.193 billion in 2017-18, reflecting an increase of 31.8 percent.
The report of inquiry committee said that the FBR calculates the minimum ex-mill price of sugar at Rs 60 per kg irrespective of the fact that it may be lower. Hence the GST on sugar is Rs 10.20 per kg at the rate of Rs 60 per kg ex-mill price. Any additional price over the minimum baseline is to be proportionately added at 17 percent for the additional price, it maintained.
The report stated that the prices of sugar had started to increase from December 2018. The retail price of sugar in December 2018 was Rs 55.99 per kg and started to increase with every passing month and reached to Rs 71.44 per kg in June 2019. It is pertinent to mention here that there was no increase of GST at that time.
As can be seen the real increase in the retail price happened between December 2018 to June 2019, when it went up by about Rs 16 per kg. Similarly, the major increase in ex-mill price occurred between December 2018 to June 2019 when it increased by almost Rs 12 per kg which is from Rs 51.64 per kg to Rs 63.59 per kg. This period saw no increase in sales or other taxes and the price of sugar cane, the major input, was also stable. The increase in retail price between July 2019 to June 2020; is from Rs 71 per kg to Rs 74.64 per kg. The data, therefore, does not show any major affect of GST on the retail price, report said.
According to the findings of the report, the practice of inclusion of taxes in the ex-mill price and then calculating the profit margins is unfair.
The findings revealed that real increase in retail price occurred between December 2018 to June 2019 when it went up by Rs 16 per kg. Similarly, the major increase in ex-mill price occurred between December 2018 to June 2019 when it increased by almost Rs 12 per kg which is from Rs 51.64 per kg to Rs 63.59 per kg. This period saw no increase in sales or other taxes and the price of sugar cane, the major input, was also stable. The increase in retail price between July 2019 to January 2020 is from Rs 71 per kg to Rs 74.64 per kg, the data, therefore, does not show any major effect of GST on the retail price, the report added.