In its forensic report – issued on May 21 – FBR stated that the tax authority recovered Rs404 billion from the sugar mills on account of taxes. These taxes were evaded from 2015 to 2019.
After a prolonged sugar shortage scandal that rattled the country from top to bottom, the federal government has allegedly failed to curb tax evasion by more than 20 sugar mills in Punjab, Sindh and Khyber Pakhtunkhwa.
Due to high purchase prices caused by tax-evading sugar mills, other mills also had to hike rates for the sake of competitiveness. The domino effect led to a record high price of sugarcane, which is now selling at Rs300 per maund.
One maund of sugarcane makes about four kilogrammes of sugar. In the context of tax evasion, an estimated margin of Rs50 is achieved per maund, which these mills use to buy more sugarcane at exorbitant prices, causing a rise in the price of sugarcane in the market.
The government has fixed a formula for determining the sales tax under which if the ex-mill price of sugar is Rs60 per kg, it bears a sales tax of Rs10.20 at the rate of 17%. At present, sugar is being sold at an ex-mill price of Rs85, having a sales tax rate of Rs12.35. However, it has emerged that the tax-evading mills are dodging taxes by showing lesser ex-mill prices.
According to a statement, the FIA has found that the “sugar mafia” earned Rs. 110 billion over the past year through “speculative pricing”—by increasing the price of sugar from Rs. 70 to Rs. 90/kg through “satta” (price fixing through collusion, rather than market demands). It alleged that the “illegally secured” funds had subsequently been stashed in fake and secret bank accounts for money laundering and tax evasion. At the heart of the matter, lies the tumultuous system of buying and selling sugar through unregistered, tax-evading sugar dealers across the country.