A shipping subsidy and lower excise tax linked to the export of as much as 1.2 million metric tons of sugar by Pakistan may lead to low inventory and high domestic prices, a unit of the U.S. Department of Agriculture said.
The decision by Pakistan’s Economic Coordination Committee of the cabinet and the Federal Board of Revenue “is being heavily criticized as a politically motivated move by the government to garner support from the sugar industry in the upcoming elections,” the USDA’s Foreign Agricultural Service said in a report posted today on its website.
Stockpiles may drop to a “precariously low level” of 400,000 tons, down from an average of 1 million tons in the past five years, according to the report.
On March 6, the coordination committee approved an inland freight subsidy of about $18 a ton on exports of as much as 1.2 million tons after previously setting the quota at 895,000, according to the report. The federal excise duty on domestic sales was lowered to 0.5 percent from 8 percent to provide an increased incentive to export, according to the report.
“The government efforts to increase the competitiveness of Pakistani sugar in the international market by means of providing direct payment to millers for export could be a violation” of World Trade Organization obligations under an agriculture accord, according to the report.
The government of President Asif Ali Zardari became the first civilian administration to complete its full term. General elections are scheduled for May.