A report by the Policy Research Institute of Market Economy (PRIME) on Pakistan’s sugar sector suggests that the import of raw sugar should be opened on a permanent basis by lowering the customs tariffs and taxes to ensure the availability of sugar in the country and promote price stability.
This report by PRIME is an attempt to reform the state-market nexus in Pakistan by analyzing the sugar sector, which cuts across our agriculture and industrial sectors and presents a rich case study of how regulations influence outcomes. The report analyzes the sugar market for a period of 10 years, from 2011 to 2022, assesses the laws and policies related to the sugar sector, and puts forth the necessary reforms.
Covering the aspect of taxation on the sugar industry, the report said that household consumption of sugar is merely 20 percent, while the rest is used by the industry. Furthermore, the proportion of sugar consumption in everyday food items is minuscule, so any increase in sugar prices will not put a significant burden on household budgets.
The report suggests that the government needs to move away from setting the ceiling price of sugar and stop using administrative controls to implement those prices. If the government aspires to provide relief to households and industry, then the 17 percent sales tax should be either eliminated or reduced to as low as 5 percent.
Although the government claims that there is no tax on sugar, general sales tax (GST) is applied at the ex-factory stage. GST in the fiscal year 2019 (FY2019) was 8 percent for filers and 11 percent for non-filers. Since the majority of wholesale dealers or purchase agents were non-filers, a GST of 11 percent was charged, and then the GST was increased to 17 percent across the board in FY2020.
However, an increase in retail price occurred from December 2018 to June 2019 of Rs. 16 per kg when there was no increase in GST. Moreover, when the GST was increased, the retail price went up by Rs. 3.6 per kg from July 2019 to January 2020.
The report further recommends that the government open the export of sugar throughout the year to create an incentive for the millers to operate at their maximum potential and sell their sugar stocks in time to make timely payments to the farmers.
The government should also eliminate tariffs on raw sugar imports in order to provide necessary inputs to mills. There might be a possibility of a low international price for raw sugar, which will hurt domestic farmers in a season or two, but the policy should focus on long-term goals and benefits, it added.