Karachi, October 22, 2023 – The Federal Board of Revenue (FBR) has launched an action against sugar millers for allegedly declaring a lower value of sugar to evade sales tax.
The Large Taxpayers Office (LTO), which is a significant revenue collection arm of the FBR, identified that many millers had under-declared sugar prices, resulting in lower sales tax collection for the national exchequer.
According to the tax office, in August 2023, sugar mills quoted prices at Rs 48 per kilogram of sweetener, while the official prices quoted by the Pakistan Bureau of Statistics (PBS) for the same month were Rs 160 per kilogram.
Sales tax on sugar was regulated through a Statutory Regulatory Order (SRO) 1027(I)/2021, which fixed the minimum value of sugar for taxation purposes at Rs 72. However, sugar millers challenged this rate in court, arguing that it was excessively high compared to the market value. The court suspended the SRO and directed the FBR to find a reasonable solution. Afterward, sugar prices in Pakistan surged to nearly Rs 200 per kilogram.
It is alleged that the sugar mills took advantage of the legal situation and deducted sales tax at the rate of 18 percent based on the lower declared price of sugar.
The LTO Karachi has issued notices to recover the underpaid sales tax amounts. However, the sugar millers have contested the FBR’s authority to determine the value of the commodity. The Sales Tax Act, 1990, provides for such determination, stating that “in cases where there is sufficient reason to believe that the value of a supply has not been correctly declared in the invoice, the value determined by the Valuation Committee comprising representatives of trade and the Inland Revenue, constituted by the Commissioner.”
In accordance with the law, the LTO Karachi has formed a committee to determine the value of sugar and ensure the recovery of the underpaid sales tax amounts.
This action is expected to generate approximately Rs 900 million for the national exchequer. The FBR’s efforts to address under-declaration and tax evasion in the sugar industry are part of a broader initiative to enhance revenue collection and ensure tax compliance in Pakistan.
