Karnataka sugar mills get R300-cr purchase tax waiver

Two-year relief to offset loss due to payment of cane arrears

THE Karnataka government’s offer to waive purchase tax to sugar mills for the next two years is likely to cost about R300 crore to the state exchequer. The government last month announcedawaiverof purchasetaxand cess to sugar mills subject to the payment of cane arrears to farmers for the last three years. The move will offset any loss sugar mills may incur due to payment of cane arrears to farmers, industry sources said.

Between 2013-14 and 2015-16, sugar mills in Karnataka had defaulted on payment of fair and remunerative price (FRP) for purchase of cane procured from farmers. Since then, cane arrears exceed R2,300 crore.

In a notification, the government said, “In exercise of the powers conferred by sub-section (1) of Section 8-A of the Karnataka Sales Tax Act, 1957 (Karnataka Act 25 of 1957), the government of Karnataka hereby exempts with immediate effect and up to March 31, 2018, the tax and cess payable under Section 25-B by a manufacturer of sugar (including Khandasari sugar) subject R2,300 to the condition of clearing of dues of the farmers relating to the financial years of 2013-14, 2014-15 and 2015-16 as per the fair and remunerative price (FRP) on or before June 30.” The exemption will be applicable to those sugar mills that clear their cane dues and secure clearance certificates from the commissioner of cane development and director of sugar, government of Karnataka, in a specified format, the notification added.

“The idea behind extending purchase tax exemption to sugar mills was to enable mills clear off their cane arrears to farmers for the last three years and also to set off their losses suffered in the last three years,” industry sources added.

The state government levies R45 per tonne of cane as purchase tax on sugar recovery of 10.5% and R35 per tonne for less than 10.5% recovery of sugar. For example, the state’s sugar mills crushed 37.3 million tonnes (mt) of cane in 201516 and the average purchase tax works out to R150 crore. However, cane availability is likely to decline in the coming sugar season due to severe drought that prevailed in the state last year. As a result, a large area under sugarcane suffered shortage of water and the cane area declined drastically. The crop planted last year will mature for crushing during the next sugar season starting October this year, South Indian Sugar Mills Association (SISMA) said.

Karnataka’s cane crushing declined 16.4% during the 2015-16 crushing season, while sugar production dropped 18.3% to 4 million tonnes compared 4.9 million tonnes produced in the previous year.

Between 2013-14 and 2015-16, mills in the state had defaulted on payment of FRP for the purchase of cane. Since then, arrears exceed crore