Govt wants states to pay SAP differential

Even as the Union food ministry is working on plans to raise the levy obligation as well as the price of levy sugar for mills, it wants the state governments which declare their own sugarcane price to bear the price differential. It also wants states to roll back sales tax/VAT on imported sugar.

Uttar Pradesh, Uttarakhand, Punjab, Haryana and Tamil Nadu are five states which declare state advised price (SAP) of sugarcane. This is different from the statutory minimum price of sugarcane (SMP) which is declared by the Union government.

Other major sugarcane producing states such as Maharashtra, Karnataka, Andhra Pradesh and Bihar follow the SMP. The SAP is sharply higher than the SMP and is mostly declared to gain political mileage among farmers. Based on 2008-09 production estimates, SAP declaring states may have to fork out Rs 225 crore for the differential in levy price between states following SAP and those following SMP.

The government imposes a 10 per cent levy on domestic sugar, which is distributed through the public distribution system (PDS). The price of this levy sugar is decided on the basis of SMP and is different from the market price. However, in a recent ruling, the Supreme Court has directed the Union government to declare levy price on the basis of SAP in states where mills pay SAP.

“This price will certainly be higher than the levy price in states where SMP is followed. Since state governments unilaterally declare SAP, they should bear the burden of higher levy price,” said government sources.

A number of states are imposing sales tax/VAT on imported sugar, thereby driving prices higher. Haryana, Madhya Pradesh, Orissa, Rajasthan, Tripura and West Bengal have levied a 4 per cent sales tax or VAT on imported sugar, while Karnataka and Jharkhand have imposed a 12.5 per cent tax. The food ministry has directed all states to withdraw such taxes on imported sugar.

With the domestic output touching a three-year low of 15 million tonnes in the current season (October-September) against the consumption of 22 million tonnes, prices have been on an upswing.

Most companies are selling sugar at an ex-factory price of Rs 3,000 a quintal, almost double the price prevalent during the corresponding period last year. At the retail level sugar is selling at a record Rs 34-35 a kg. With the festive season round the corner and monsoon remaining weak, the government has been working on measures to contain sugar prices.