Sugar prices are likely to remain firm over the next three months on increased festival demand and a supply crunch, traders said. Sugar prices have climbed 3 per cent since July 1despite a lower tax burden on the commodity under the goods and services tax (GST) regime as traders delayed purchases to take benefit of input credit, drying up supply lines. Tax on sugar has come down to 5 per cent from about 8 per cent since July 1 when the GST was rolled out. "Although, the effective tax on sugar has come down after GST, this has not helped end consumers," said Ashok Jain, president at Bombay Sugar Merchants’ Association. "Sugar prices have increased rather than declining for the end consumer." In order to take input credit under GST, sugar traders had stopped buying sugar in June and were off loading the stocks with them.
This dried up supply, creating more demand in July. Input credit allows a seller to reduce the tax burden being paid by claiming offset for the taxes already paid on inputs. Before GST, cess of about 6 per cent and octroi of nearly 2 per cent was charged on sugar, taking effective tax on the sweetener to 8 per cent. Post GST, overall tax on sugar is only 5 per cent charged on the traders. So a fall in the tax rate should have reduced sugar prices.