Government Hikes Sugar Price for Tax Purposes
On Tuesday, the Federal Board of Revenue (FBR) announced a major change to the minimum sugar price used for sales tax collection. The update increases the base price per kilogram by Rs10 to Rs15, potentially boosting government revenue by Rs90 billion annually.
The new rate has been introduced through a statutory regulatory order (SRO), replacing the older benchmark of Rs72.22/kg. Now, the minimum sugar price is set at Rs126/kg, a 75% increase compared to the previous figure.
Why the Sugar Price Changed
The FBR will now update the minimum sugar price twice a month, using data from the Pakistan Bureau of Statistics (PBS). The rate is based on the average national retail price minus Rs16, as listed in the Sensitive Price Indicator (SPI).
As per the latest PBS report, the average retail sugar price is Rs168.80. Using the formula, the new ex-factory price inclusive of tax is Rs152.80 per kg.
Tax Impact: Rs28 Per KG
This change means:
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The FBR now collects Rs28/kg in sales tax, up from Rs13–18/kg.
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The SRO replaces the 2021 notification that pegged the price at Rs72.22/kg.
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The move aligns tax collection with real-time market rates.
Government’s Side of the Story
Haroon Akhtar Khan, Special Assistant to the Prime Minister on Industries, claimed the market price of sugar won’t rise due to this change. He said the new system ensures uniformity, as earlier, tax was charged based on varying sale prices across regions and mills.
Khan added that the decision was made with the agreement of the sugar mills association.
How Much Will the FBR Collect?
Last year, sales tax on sugar brought in Rs118 billion based on prices between Rs72.22 and Rs100/kg. With the revised rate:
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The government aims to collect at least Rs208 billion this year.
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This includes an additional Rs90 billion in revenue.
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In the current fiscal year, Rs23 billion is expected to be generated in the remaining months alone.
However, sugar mill owners disagree. They argue that most mills were already paying taxes on Rs100/kg, so the real gain may only be Rs15–20 billion.
Excise Duty and Other Charges
Besides the sales tax:
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A Rs15 federal excise duty per kg is charged on sugar sold to commercial users.
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This has brought in Rs9 billion in the first nine months of the fiscal year.
Despite these measures, the FBR faces a Rs714 billion revenue shortfall. Even with reduced tax refunds and adjusted IMF targets, hitting the Rs12.33 trillion goal will be tough without further action.
SRO Concerns Raised by International Partners
The United States Trade Representative (USTR) has flagged Pakistan’s frequent SRO usage as a concern in its trade barrier report. The report criticized:
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Arbitrary issuance of SROs
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Sector-specific tax exemptions
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Lack of a timeline for phasing out SROs
Pakistan had previously agreed with the IMF to limit SROs to emergencies only. But so far, that pledge remains unfulfilled.
Sugar Exports and Millers’ Gains
The government recently allowed the export of 795,000 metric tonnes of sugar. It also fixed the retail price at Rs164/kg, up by 13% from the previous rate. Each Re 1 increase in sugar price gives millers a benefit of around Rs2.8 billion.
Final Thoughts
The revised sugar price for tax purposes is a significant revenue move by the FBR. While the aim is to close the widening fiscal gap, the impact on market prices, millers, and consumers remains a hot topic.
Stay informed as more tax reforms and updates unfold in the coming months.
