This should bring some cheer to sugar mill owners in UP. Different departments of the state government have got together to work out measures that would give the sagging sector a much-needed boost.

A high-level delegation met UP chief minister Akhilesh Yadav last week with a list of suggestions to keep the sector afloat.

They have sought exemptions on purchase and entry tax on sugar, molasses administrative charges and a reduction in levy molasses from 20% to 10%. The effort would cost the state approximately Rs 500 crore.

Yadav had promised the delegation, led by Vivek Saraogi of Balrampur Chini, that his government will not let the industry die and directed his officials to “find out ways to keep the sugar industry alive”.

The impact of rolling back some taxes would definitely lift the burden off the industry but it would also hit the state's revenue hard. According to sources, UP at present charges 2% entry tax on the invoice value of sugar sold by manufacturers within the state and 3% purchase tax on the FRP (fair and remunerative price) of cane. The molasses administrative charges work out to be R12 a quintal for molasses sold within the state and R15 per quintal when sold outside the state.

While the exemption on entry tax on sugar from the present 2% would mean a benefit of R219 crore to the mill owners, the exemption on purchase tax would mean a benefit of R166 crore. “The waiver of molasses administrative charges will give the industry an additional R40 crore while the scaling down of reserved molasses for country liquor in the form of levy from 20% to 10% would give them an additional R91 crore. In total, the figure that is being worked out is R516 crore,” said an official, adding that some of the issues are rather tricky and difficult.

The proposed abolition of molasses administrative charges and cut in molasses levy may face opposition from the country's liquor lobby, which could be adversely affected by such moves, said a source. Again, there are severe reservations on bringing down the administrative charges on molasses as the excise department fears a waiver would severely hit its revenue targets. The sugar millers have, since the beginning of the current season, brought to the notice of the state government that the R40-a-quintal hike in cane price over last year would be suicidal for the industry unless the government waives off some taxes.

“With UP expected to produce 79 lakh tonnes of sugar this year, the loss to the industry would work out to almost R4,000 crore on account of the high cane price, low recovery and paying various taxes. A loss of such a huge quantum would obviously either get translated into cane price arrears for farmers or default in bank payments,” said an industry source. It may be mentioned that the UP has fixed SAP for 2012-13 sugar season at R280 a quintal for the general variety of cane as compared to R240 a quintal last year — an increase of 16% over last year.

The UP government has also taken up the matter with the Centre. In a letter to Prime Minister Manmohan Singh, the UP CM has urged the Centre to immediate steps to give the industry a boost. “It is our since request that you support our efforts to increase sugarcane production in the state by withdrawing the compulsory 10% levy on sugar so that mills are able to sell their produce at the market price and also impose 60% import duty on raw sugar instead of 10% so as to restrict import of raw sugar in the country.”