Hiding genuine production: FBR launches operation against sugar mills

ISLAMABAD: The Federal Board of Revenue (FBR) has launched an operation against sugar mills that have been hiding genuine production to cause billions of rupees losses to the national exchequer.

One sugar mill located in Sindh and one in Punjab have been found guilty of involvement in such practices and the FBR has instructed them to close down both units.

The FBR has launched its operation after facing a massive revenue shortfall in the first five months of the current fiscal year in the range of Rs338 billion.

The FBR had, so far, fetched Rs4.3 trillion revenue during the first five months (July-Nov) of FY2024-25. The board will have to collect revenues of Rs1.71 trillion this month (December) to achieve an indicative target of Rs6.009 trillion by Dec 31, 2024, under the IMF programme. In case of further shortfall, the IMF programme will enter into a danger zone on the first review scheduled to be held in Feb-March of 2025. Sources said an internal assessment of FBR showed that the shortfall in December 2024 would be hovering around Rs100 to Rs150 billion.

For effective enforcement to plug leakages, the FBR has installed Track & Trace System (TTS) and Hopper Solution to gauge the real production of sugar mills across the country. The FBR high-ups told The News on Thursday that they took actions against three sugar mills and two were shut down while the third one was in the process of shutting down.

The FBR had invoked Section 40-B of the Sales Tax Act and deputed around 300 officers on all sugar mills to monitor their production and curb billions of rupees tax evasion.

The prime minister has approved powers to the Intelligence Bureau (IB) to keep strict surveillance over FBR’s designated monitoring officers on sugar mills as sales tax evasion of Rs40 billion on an annual basis is feared.

The FBR has devised a three-pronged strategy, including invoking 40-B of the sales tax for deputing monitoring officers on sugar mills, effective placement of Track and Trace System (TTS) and assignment of officers for further monitoring of deputed officers.

Out of the total production of 6.7 million tons of sugar, the sales tax collected at a rate of 18 percent should fetch an amount of Rs130 to Rs140 billion on an annual basis. However, the FBR’s collection stands at around Rs90 to Rs100 billion, so there is a tax gap of Rs30 to Rs40 billion at least. There is not much input involved except sugarcane and electricity, so there is no other way but to ensure proper monitoring of production for avoiding tax evasion.

One official said that the Track and Trace System was installed at 80 sugar mills but the FBR fears there is a possibility of sugar bags coming out without TTS stamps. It’s hard to explain because if the bags are without stamps, it could be seized. But there are chances that fake TTS stamps might be affixed to deceive the tax machinery. So, it needs proper scrutiny and enforcement as well as stern actions against those involved in such practices.

Without effective enforcement, the FBR cannot plug leakages of billions of rupees despite installment of Track and Trace System. Now it has started taking action against those who are found involved in dispatching production without TTS stamps and Hopper Solutions monitoring, which clearly indicates that they were causing losses to the national exchequer.