Excise duty on cement may be cut by 25 per cent

[LahoreEstate]

Sunday, May 24, 2009
By Khalid Mustafa

ISLAMABAD: In the budget for 2009-10 that is to be announced on June 13, the government is considering slashing excise duty on cement by 20 to 25 per cent as the existing duty stands at Rs900 per ton, said a senior official at the Ministry of Finance.

“Cement dispatches are currently subject to payment of Rs900 as federal excise duty per ton, 16 per cent general sales tax, one per cent special excise duty, 0.1 per cent marking fee of ex-factory price and provincial duties and taxes. These taxes come to around Rs96 per bag, which is the highest in the world.”

“The government, at present is levying 16 per cent GST on the excise duty paid value of the cement, which is a very unethical and coercive measure of taxation authorities. Such things will also be reviewed while making the final decision on giving tax relief to the industry.”

When contacted, Advisor to Prime Minister on Finance Shaukat Tarin, confirmed that the government would provide tax relief to the cement industry, so that the construction industry is encouraged to flourish and accelerate economic growth. He said that the government will not levy any further tax on this industry; rather decrease the CED to a reasonable level.

However, he said that the decision about the volume of tax relief would be taken keeping in view revenue collection projections of the next year.

The official said the government has acknowledged that the cement industry is heavily taxed, which needs to be rationalised if the government wants more investment and increase in cement production.

Construction work on dam portion of Diamer-Basha reservoir is going to kick off next fiscal year and the government’s likely decision to reduce CED will help the industry cater to the needs of dam construction.

“The expected decision will also encourage more international investors to invest in Pakistan in this sector, to export products to countries which are in the stage of reconstruction such as Iraq and Afghanistan, and will also cater to increasing demand in UAE,” said Tarin.

The cement industry, the official said, has sought 50 per cent reduction in central excise duty. Excise duty is basically a tax to discourage industrial production, but the government, which is facing the issue of collecting more revenue, is pondering over just a 20 to 25 per cent relief on this account.

This will help give impetus in cement production growth and will not only help increase the outreach of cement exports in the world, but will also ensure more employment opportunities in the sector. However, around three important ministers with feudal backgrounds are opposing the proposal. Instead, they are in favour of piling more taxes on the efficient industry, in a bid to avoid the agriculture sector from coming in to the tax net in the coming years.

The cement industry has performed very well at a time when global recession persists and Pakistan’s GDP growth has alarmingly tumbled to 2 per cent from last year’s growth of 4.1 per cent. It is projected to earn foreign exchange of $700 million for Pakistan, which is in dire need of building up foreign reserves. So far the industry has exported products worth $520 million.

Cement industry comprises of 29 units with an installed production capacity of 44.07 million metric tons. 19 units located in the north have installed production capacity of 35.18 million metric tons (80pc), while 10 units/sites located in the south have an installed production capacity of 8.89 million metric tons (20pc). As majority of the cement production capacity is in the North Zone, the factories are paying high inland freight cost for export of cement by sea.

Cement industry is capital intensive and has invested more than US$1.5 billion during 2003 to 2008.

Shareholder’s equity and debt position was Rs102 billion and Rs100 billion respectively up to June 30, 2008. Cement industry is also serving the nation by providing job opportunities with more than 150,000 persons presently employed directly or indirectly in it.

Presently, cement production capacity in Pakistan is 44.07 million metric tons, which will further increase to 48 million tons by end of June 2011. Local demand in the country is expected to be around 20 million metric tons, leaving a surplus of 24 million metric tons that can be exported to earn much needed valuable foreign exchange for the country.

Consumption of cement in the local market has gone down (15pc negative growth during the last ten months compared with corresponding period), as neither are there any big private projects going on, nor is the government fully utilizing its budgetary allocation for Public Sector Development Programme (PSDP).

The cement industry of Pakistan has exported 7.716 million tons of cement during 2007-2008 and has earned $450 million. It is very important to provide immediate support to encourage exports. The government should provide freight subsidy of Rs200 per ton and exports will almost double.

The official said that the industry wants to revise duty drawback on exports of cement, as currently it is getting Rs24 per ton as drawback.

“Cement industry is importing coal and pet coke as fuel for production. Customs duty on imported coal is zero, while on pet coke it is 5pc.” The official said that demand to erase customs duty on pet coke may be considered by the authorities concerned.


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