The Hindu Business Line : Sugar industry: Looking for some sweetener

The sugar industry in the country, confronted with sugar prices that it says are the lowest in recent times and compressed margins, is hoping that the Budget will include a range of announcements on indirect taxes and direct taxes that are specific to it. Besides, the industry is also looking for measures to promote ethanol as a bio-fuel.

According to Mr P. Rama Babu, President, Indian Sugar Mills Association, the industry would like an ad valorem rate of excise on molasses, exemption from tax on cash withdrawals, exemption for sugarcane from service tax on goods transport, weighted deduction to sugar mills for road development and promotion of ethanol as a bio-fuel through a tax holiday.

Indirect Tax

Excise duty on molasses was Rs 750 a tonne, which is `excessively high' compared to the current prices of Rs 1,000-2,000 a tonne molasses. In Tamil Nadu, for instance, he said molasses was about Rs 300 a tonne. Excise is higher than molasses prices. There is a strong case for the mills that excise duty should be reduced. ISMA suggests that the duty may be levied at 8 per cent `ad valorem.'

Even the high-powered committee on sugar industry had suggested that the criterion should be the sugar content in molasses. With the excise on free sale sugar at Rs 340 a tonne, excise on molasses, which contains less than 50 per cent sugar, should not exceed Rs 170. If ad valorem is not feasible, the Government should levy excise at Rs 170, he said.

Another area of concern was the tax on cash withdrawal. The mills make a `large number of small payments.' Sugar mills deal with `lakhs of farmers and thousands of transporters' and most of these dealings are in cash. Workers' wages are also disbursed in cash. Some factories disburse more than Rs 1 crore on a day. Sugar factories should be exempted from the tax, he said.

Direct Tax

Sugar mills have also sought exemption from service tax on sugarcane transport. Such exemption would be revenue neutral as the payment qualifies for Cenvat credit. But a lot of paper work would be avoided.

Sugarcane, a perishable item and an essential commodity, could be included under the notification that exempts transport of perishable goods like fruits and vegetables from such service tax.

On direct taxes, ISMA has sought weighted deduction of `150 per cent' of the cost incurred by sugar factories on constructing roads in rural areas. The Government has in the past emphasised incentives and tax holidays on investments in roads to companies taking up the work. Sugar factories that undertake road construction should be extended this benefit.

Promoting ethanol as biofuel

Cane harvesting at Cuddalore district, Tamil Nadu

Ethanol from sugarcane and other sources has been a proven biofuel worldwide. It contributes to rural income and augments GDP growth at the grassroots level. Countries such as the US and Brazil promote ethanol in a big way and have extended tax breaks.

To expedite its adoption as a biofuel, ISMA believes it would be desirable to give tax holiday on production of ethanol under Section 80-IA.

Also, the reduction on 30 paise a litre in special additional excise duty on ethanol-blended petrol should be reintroduced. It was earlier permitted in 2003 but withdrawn from February 29, 2004.

The representation was critical to the sugar mills, which were looking at an extended period of low sugar prices and compressed margins.

Mr Rama Babu said these were critical issues to the sugar mills which were facing one of the lowest sugar prices and compressed margins. Prices are expected to rule low with sugar supplies expected at about 24 million tonnes against a consumption of about 18-19 million tonnes.