Experts ask govt to review sugar mills benchmarks to stop tax evasion

[Naveed Yaseen]

By Mansoor Ahmad
LAHORE: Sugar prices would remain volatile until the government determines its content in sugarcane and the cost of sugar production and then imposes some tax on mills accordingly after taking into account all byproducts of cane.

Sugar prices in Pakistan always stay much above global sugar rates. Sugar mills attribute higher prices to increase in the cost of production which belies logic. Sugar is not the only product that the mills produce after crushing of sugarcane.

They get other valuable products like molasses, cane straw (used to produce electricity and partly consumed by chip board industry) and waste. Some mills which have installed distilleries produce ethanol which is in fact their main principal product while sugar becomes a byproduct.

Another aspect worth noting is that the mills declare an average 8 per cent sugar content in cane. There should be an independent and transparent system of determining sugar content in all varieties during the months of November, December and January. Sugar content increases appreciably as winter progresses.

Analysis of sugar content in all sugarcane varieties developed by various research institutes reveals that it varies from 9.5 to 11 per cent. If true, this amounts to millions of tons of additional sugar and reduces the cost of production besides tax evasion.

Sugar mills challenge the writ of the government. They start crushing season at the time which suits them without considering that the late start deprives the farmers of wheat sowing. They also determine prices of sugar. Usually they link the price of sugarcane to the rate of sugar.

When the size of the crop is larger than demand, they tend to pay lower than the announced support price of sugarcane to the farmers by adopting different tactics including tampering with weight bridges, delay in payments to farmers and then buying back their cash purchase receipts (CPR) at discounted rates through third parties.

On the other hand, when sugarcane crop is short they allege that they buy it at high rates. This year they have been claiming to have bought sugarcane at Rs125 per 40 kg compared to the support price of Rs80. However, they have not been able to produce any CPR under which they paid such high prices. In fact, the farmers with CPRs issued at the government-announced support price are still waiting for the release of payments. The mills have increased the price of sugar by around Rs10 per kg on the plea that they paid higher rates of sugarcane.

Recently, the chairman of Pakistan Sugar Mills Association Punjab chapter admitted that molasses was a major byproduct in sugar production and if the government imposed export duty on that it would impact the ability of the mills to pay farmers’ dues.

Taxation experts have advised the government to determine the cost of production of sugar after taking into account benefits of all byproducts and impose income tax on the mills according to the profit they charge on transparently determined cost of production. This way the mills would at least contribute some share to the government’s kitty whenever they exploit the consumers.

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