UP sugar units want tax relief to avoid payment default

Alarmed over the slump in sugar price in domestic and international markets, the UP Sugar Mills Association (UPSMA), an affiliate of the Indian Sugar Mills Association, has petitioned the UP government for immediate tax relief to avoid the delay in payment of sugarcane prices to the farmers in the crucial election year.

The UPSMA, in its memorandum to the state government, has said the delay in payment of arrears to the farmers would have adverse impact on the electoral prospects of the ruling Samajwadi Party in assembly elections due in next April.

The UPSMA has demanded relief from the purchase tax, levied at Rs 2 per quintal, society commission which is levied at the rate of 3 per cent of the statutory minimum price of the sugar, fixed by the Union government and exemption from the entry tax.

Twenty two sugar mills, set up after the new sugar policy announced in August 2004, were already exempted from the entry tax.

If the demands of the UPSMA are fully conceded by the state government then it could bring relief of Rs 1,500 crore on account of purchase tax and little over Rs 2,000 crore by way of society commission and close to Rs 100 crore if exempted from the entry tax.

The UPSMA has estimated that on production of 73 lakh MT sugar during the current season 2006-07, the loss to the sugar industry could be as high as Rs 1,500 crore due to slump in prices. The sugar industry in UP also includes the mills in PSU and co-operative sector.

The sugar industry in UP is on the verge of a financial crisis during the current crushing season as the sugar prices have declined by Rs 300/quintals as compared to the same period during 2005-06, stated the UPSMA memorandum to the government.

It added that each sugar bag sold by the sugar factory is resulting in a loss of Rs 200 per quintal.

A senior official of the sugar company said, "The state government had increased the support price for the sugarcane for the current season by Rs 10/quintal which was not considered to be very high in view of the prevailing prices of the sugar in September 2006," he said adding the situation has deteriorated with a steep fall in prices which are now ruling at Rs 1,450/ quintal in central UP and around Rs 1,500/quintal in west and east UP.

According to the UPSMA, the average cost of production is UP is estimated to be Rs 1,706 per quintal against which the average selling price for the whole year is not expected to be more than Rs 1,500 per quintal.

The memorandum submitted of the UPSMA stated lifting of restrictions on export of sugar by the UPA government would bring no benefit to the sugar mills in UP as the sugar prices in international markets were ruling at $ 330 FOB, which works out to be ex-factory realisation of not more than Rs 1,350 per quintal.

Therefore, the export route was closed as far as sugar industry in UP was concerned.

The memorandum added that the state government should take some corrective measures by providing some relief to the sugar industry as has been done in the past in such situations like exemption from the purchase tax, society commission and entry tax.