Home News Your sugar may soon taste bitter, new cess may push prices up

Your sugar may soon taste bitter, new cess may push prices up


Love sugar? Be prepared: Its taste may turn out to be slightly bitter soon. The central government is mulling over a proposal to introduce a sugar cess, which will be in addition to the 5 per cent Goods and Services Tax (GST). If it goes ahead, it would mean that consumers would have to shell out more to delight their taste buds.

In May, the GST Council had discussed a proposal to introduce a sugar cess in addition to the current GST rate. The aim was to help sugarcane growers who have been battling against delayed payments.

To ensure that the move was made on sound legal grounds, a Group of State Ministers (GoSM) with the GST Council had sought the opinion of Attorney General KK Venugopal. Responding to the request, the attorney general has favoured introducing the sugar cess.

In his legal advice, the AG is said to have waved a green flag to the proposal on the grounds that the Supreme Court has already upheld the constitutional validity of the Act governing cesses under GST.

The issue of cesses under the Compensation to States Act, 2017 was one of the five elements of the GST that were challenged in the Supreme Court.

Ruling in favour of the Act, the Supreme Court had disposed the petition, and held that the levy of cesses to provide compensation to states (which will incur a drop in revenue due to the imposition of one tax for all India) is permissible in law despite the cess being an increment to GST.

In its meeting on May 4, the GST Council announced a GoSM to build a consensus on the proposal of a sugar cess. Now, armed with the AG’s legal advice, the GoSM, led by Assam Finance Minister Himanta Biswa Sarma, is expected to study all aspects and finalise a proposal which eventually needs a formal nod of the GST Council

Sugary politics

Sugar prices are a matter of politics. Since it’s a mass consumption commodity, most states had reservations against the move to impose a sugar cess.

Arguing that a special sugar cess may run against the basic tenets of GST, the states felt that if the move failed judicial scrutiny, they would face twin setbacks — failing to help farmers and getting blamed for attempting to raise sugar prices.

But the Centre and BJP-ruled states favoured the move, which is expected to create a Rs 7,000 crore corpus, as they are keen to win over the large farmer vote bank ahead of the 2019 polls in key sugarcane-producing states like Uttar Pradesh.

What sugar cess proposes?

The sugar cess proposes the imposition of a cess at a rate not exceeding Rs 3 per kg on supply of sugar (over and above the 5 per cent GST).

The revenue earned by doing this will be deposited in a fund, which can be used by the central government to make prompt interventions to provide relief to sugarcane growers, as the sugar industry’s cyclical nature regularly keeps pushing farmers into a state of distress due to delayed payments.

The original proposal for a sugar cess was made in the Consumer Affairs Ministry. According to the Ministry, sugar mills owed farmers around Rs 9,500 crore last year. But by January 31, 2018, dues had escalated to a whopping Rs 19,000 crore. This was largely due to oversupply and the consequent subdued factory-gate sugar prices. Through some interventions, it was brought down to Rs 11,700 crore by September 30, 2018.

To reduce the distress in the sugar industry due to depressed market sentiments and crash in sugar prices, the central government had earlier this year approved financial assistance of Rs 5.50 per quintal of sugarcane crushed in the sugar season 2017-18 to offset the cost of cane, and to help sugar mills to clear farmers’ dues.

However, a sugar cess is not a new concept. The Sugar Development Fund Act, 1982 was in play for several years, but was abolished in 2017.

Source: India Today