The Vietnam Sugar Association has proposed a value-added tax exemption for locally produced sugar to help its members compete against cheaper smuggled products, news website VnExpress reported Sunday.

The association estimates that 250,000 tons of sugar, or around a quarter of local consumption, is smuggled into the country every year. The large volume means tax revenue losses of around VND500 billion for the state treasury, while local producers are placed in a tough situation.

Since smuggling cannot be stopped completely anytime soon, it’s necessary to make local products more competitive by cutting VAT to zero from the current 5 percent, the association said.

It also called for stronger measures to deal with smugglers and demanded all smuggled sugar is re-exported.

Vietnam is expected to produce 1.07 million tons of sugar in the 2010-2011 season, up from around 900,000 tons the previous year. Demand in 2011 is set to reach 1.2 million tons.

The sugar association said that despite a 23.1 percent increase in sales in the first four months, its members still have a stockpile of 542,000 tons.

The Ministry of Industry and Trade in February granted annual quotas for 24 domestic companies to import 250,000 tons of sugar. Last month, it asked them to stop importing so local companies could clear their stock.