Improving ST collection from sugar sector: AGP wants FBR to take policy measures

The Auditor-General of Pakistan (AGP) has recommended that Federal Board of Revenue (FBR) should take policy measures to improve sales tax collection from sugar manufacturers, ending the practice of fixing sugar value for sales tax assessment.
Sources told Business Recorder here on Tuesday that the AGP had submitted a few recommendations regarding the sugar sector during the performance audit of the sector. The FBR is examining the recommendations of the AGP office, which are mainly policy measures to check loopholes in sales tax collection from the potential sector. According to the AGP recommendations, keeping in view the shortcomings/lacunae inconsistent to various laws and orders in vogue being applied in the concerned industry and department, some recommendations have been made with a view to improve the effectiveness of law, proper assessment of duty/taxes not only to provide safeguard to the public revenues but also increase its legitimacy.
First, there is need to do away with the practice of fixing value of sugar for the purpose of realisation of sales tax/duty and remission in rate of tax also needs to be withdrawn as this tax subsidy does not fulfil its objectives; rather it paves the way for profiteers of sugar.
The FBR in response to the reference made by the AGP has consented to do away with the practice of fixing value of supply, and promised to get revised the statutory rate of tax by the competent forum. But nothing has been done so far to provide safeguard to the public revenue.
According to section 3(1) read with section 2 (46) of the Sales Tax Act, 1990, there shall be charged and paid sales tax at the rate leviable from time of the value of taxable supplies made by a registered person in the course or furtherance of any taxable activity carried on by him. The value of supply means the value which the supplier receives from the recipient for that supply but excluding the amount of tax. During performance audit of sugar sector, it was observed that sugar sector had been paying tax on lower value than prevailing in the open market. To overcome the issue, the FBR determined the value of supply for the purpose of sales tax, exercising its powers under the law from time to time.
The Federal Government had reduced the rate of sales tax from 16 percent to 8 percent vide SRO No(I)/2009 dated 23rd August, 2009 till further orders to ensure supply of sugar at affordable price to the common man. The AGP observed that the concessions granted to sugar sector by the government did not provide any relief to common man; rather it proved to be a money spinning venture for the hoarders/mill owners.
According to enacted provisions of the sales tax law, the value of supply means the value which the supplier receives from the recipient for that supply but excluding the amount of tax and rate of sales tax ie 16 per cent of value of supply. The FBR did not review the notifications allowing relief in sale tax in the shape of fixation of price and lower rate of sales tax.
This deprived the government of Rs 14.198 billion revenue, approximately, in only 40 units out of total 118 sugar mills during the period from September, 2009 to March, 2010. Due to recurring impact of revenue loss, the matter was brought into the notice of FBR Chairman with the suggestions that the value of supply of sugar needs to be determined rationally, keeping in view the open market price. The remission of tax be withdrawn immediately to avoid recurring loss to the government in terms of revenue. The amount pointed out against units be realised/recovered under intimation to Audit as the price of sugar was determined by the market forces and impact of remission of tax was not passed on to the common man.
In response, the FBR said that a summary for Economic Co-ordination Committee of the Cabinet Division was submitted, proposing the withdrawal of 8 percent GST facility on sugar and doing away with the practice of fixing assessable value of sugar. However, with regard to retrieving the loss of government revenue, the FBR said that these concessions were granted by the Federal Government as a policy to provide relief to general consumer. Thus, the Audit suggestions for realisation/recovery of the alleged loss of government revenue on account of reduced rate of sales tax and fixed value of assessment for domestic supplies had not a legal backing and, therefore, could not be implemented.
The AGP was of the view that had the FBR taken the notice of the situation timely, keeping in view non-fulfilment of objectives of concessions granted to sugar sector, the public exchequer would have been saved from this huge loss of billions of rupees. There is need to determine value of supply of sugar keeping in view the open market price. The remission in rate of tax also needs to be withdrawn as this remission did not fulfil its purpose; rather it went in the till of hoarders and mill owners, AGP added.
Second, the internal controls need to be made effective to ensure proper assessment and payment of government revenue. Third, the practice of claiming adjustment of input tax/duty contradictory to the provisions of the law needs to be discouraged /streamlined.
Fourth, sugar sector being one of major revenue contributing industries needs to be properly monitored through internal audit and recovery of amount pointed out needs to be expedited. Fifthly, effective measures are needed to recover the detected amount and to efforts to be made to plug in loopholes causing pilferage of government revenue within the sugar sector.
Sources said that the FBR is likely to submit its response to the audit observations of the AGP office in the next Public Accounts Committee. The FBR has also been compiling viewpoint of the Large Taxpayer Units (LTUs) and Regional Tax Office (RTOs) on the recommendations of the AGP for onward submission to the committee.