The government has revised the minimum price of sugar for sales tax collection, leading to an increase of Rs10 to Rs15 per kilogram while generating an estimated additional Rs90 billion in annual tax revenue.
The Federal Board of Revenue (FBR) issued a new statutory regulatory order (SRO), replacing the old base price of Rs72.22 per kg with a dynamic pricing model linked to the Pakistan Bureau of Statistics’ (PBS) retail price index.
Effective until April 15, the new rate stands at Rs126 per kg, reflecting a 75% hike from the previous fixed price, though some mills were already paying sales tax based on rates ranging from Rs100 to Rs110 per kg.
According to the new formula, the minimum price for taxation will be determined biweekly using the last published PBS retail sugar price minus Rs16.
Given that the most recent average price recorded by PBS was Rs168.80, the updated ex-factory price inclusive of sales tax is now Rs152.80 per kg, resulting in an 18% sales tax of Rs28 per kg, up from Rs13 to Rs18 under the previous system.
The notification supersedes the August 2021 order, under which sales tax was collected at Rs72.22 per kg.
Special Assistant to the Prime Minister (SAPM) on Industries, Haroon Akhtar Khan, downplayed concerns about a price hike, asserting that the change would not affect market rates and was implemented with the approval of the sugar mills association.
Meanwhile, FBR officials revealed that tax collection on sugar last year amounted to Rs118 billion under the previous pricing model, whereas the revised system is projected to push revenue to Rs208 billion.
The decision follows an FBR investigation that found many mills were still paying taxes based on outdated rates, a lapse attributed to the board’s failure to update the base price annually.
However, sugar mill owners argued that the new system would generate only Rs15 to Rs20 billion in extra revenue, as many mills were already taxed at Rs100 per kg.
Besides sales tax, the government also levies a federal excise duty of Rs15 per kg on sugar supplied to manufacturers and commercial users, which contributed Rs9 billion in the first nine months of the fiscal year.
With the FBR facing a revenue shortfall of Rs714 billion, the adjustment in sugar tax pricing is expected to bring in an additional Rs23 billion in the fiscal year’s remaining months.
Last month, Prime Minister Shehbaz Sharif announced that the International Monetary Fund (IMF) had agreed to lower Pakistan’s annual tax collection target from Rs12.97 trillion to Rs12.33 trillion, reducing the burden by Rs640 billion.
Despite this, the FBR is struggling to meet even the revised target, making new revenue measures crucial.
In a separate move, the government recently set sugar’s retail price at Rs164 per kg, 13% higher than before, allowing millers to benefit from increased local and export revenues.
A U.S. Trade Representative report recently criticized Pakistan’s frequent use of SROs, noting that such regulatory decisions often lack transparency and impact international trade policies.
Despite prior commitments under IMF programs to restrict SRO issuance to emergencies, Pakistan has yet to establish a timeline for phasing them out.