Maharashtra may exempt sugarcane purchase tax for current sugar season for industry

In its budget had hiked the sugarcane purchase tax from 3% to 5%

The Maharashtra government may exempt sugarcane purchase tax for the current sugar season started in October 2013.

According to officials close to the development, following the difficult in cash flow situation, the government may altogether exempt the purchase tax to be collected at the rate of 5% of the total purchase price. It will be for the current season in 2013-14.

In order to bring relief to the drought hit farmers, the Maharashtra government in its budget 2013-14 had hiked the sugarcane purchase tax from 3% to 5%.

However for  past years, the state is saddled with tax arrears of around Rs 500-600 crore (mainly sugarcane purchase tax). Accordingly the state revenue department has directed its field formation to get into recovery drive. Official sources said for non tax payment of taxes, the tax department usually freezes bank accounts. But in case of sugarcane industry, mostly these factories have loan accounts. Therefore the viable option is the seize property which they have done in many cases.

The revenue department also proposes to direct the co-operative banks handling the accounts of the sugar factories and millers to deduct the sugarcane purchase tax on behalf of the government. There have been serious and several defaults in this sector, said a source.  

Some time back the state had devised this system of recovery through the cooperative banks which did not work out as these cooperative banks hardly get their loans repaid, said sources. Usually the sugar factories hypothecate their produce in the form of bags to these banks against the loans they get from the banks before selling.  Thus the five per cent purchase tax comes to Rs 100 per bag. According to the proposal, the government may ask the cooperative banks to deduct the purchase tax before  issuing clearance certificate for selling.   

Meanwhile the central government in its bid has approved modalities for providing interest-free loans worth Rs 6,600 crore to the sugar industry for payment of cane price arrears.

Reeling under the impact of high cane costs and slump in sugar prices, the industry is currently saddled with arrears of around Rs 3,000 crore.

With cane crushing gaining momentum in the current 2013-14 season, the payment dues for the current season have started building up. In order to ease the cash flow situation, these loans will carry a two-year moratorium and would have to be repaid in five years. The loans would be meant exclusively for the effecting cane price payment by the sugar mills.

Sugar undertakings with loans will be classified as non-performing assets and will also be eligible for the loans, provided the State Governments concerned stand guarantee for the new loans.

The industry expects a relief package to reduce the interest burden of around Rs 500 crore annually, over the next five years.