`Bill promises significant relief from local taxes' 
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Sour taste
Currently basic tax is Rs 60
Turnover tax is about Rs 12
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The sugar industry is cautiously optimistic on its prospects under the value added tax (VAT) regime in Tamil Nadu.

Industry representatives say that the Value Added Tax Bill 2006, published recently by the Tamil Nadu Government, promises significant relief for sugarcane from local taxes.

They have welcomed the publication of the proposed legislation, which they say will put them on an even footing with other sugar producers. However, details of the various schedules in the Bill it has six schedules without a list of goods under them would be needed before a final picture emerges.

But the VAT Bill indicates that the tax on sugarcane would be 1 per cent. In the Bill, sugarcane has been brought under the second schedule, which covers goods that are taxable at the rate of one per cent. This could work out to about Rs 12-14 under current sugarcane prices, which is over Rs 60 lower than the prevailing tax on sugarcane.

Industry sources point out that under the existing sales tax regime in the State, taxes on sugarcane are the highest when compared with other sugarcane- growing States. The taxes, including a basic tax of Rs 60 and a turnover tax of about Rs 12, works out to about Rs 72 under the Tamil Nadu General Sales Tax, which is to be repealed under VAT.

But it remains to be seen whether the benefit would entirely accrue to the sugar mills.

They point out that sugar has now come under the purview of State taxes. Earlier, it was under Additional Excise Duty, revenues from which were passed on to States by the Centre. But in the Union Budget for 2006-07 the Centre did away with AED, which it merged with basic excise duty. This was seen as a preparatory step to enable State Governments levy sales tax on sugar.

As of now, the State Governments have agreed not to levy VAT on sugar till March 2007. But subsequently, representatives say, it is inevitable that VAT would be levied on sugar. This is expected to be at 4 per cent as is the norm for agriculture goods under VAT.

Representatives say that the relief comes at an ideal time for the sugar mills, which are looking at a bumper crop in Tamil Nadu. Sugarcane output in the 2006-07 season is estimated to touch about 250-260 lakh tonnes against what is usually considered a normal level of about 180-200 lakh tonnes. This is expected to dampen sugar prices.