Cement sector demand prudent Government policies, not subsidies

Karachi, June 07, 2012 (PPI-OT): All Pakistan Cement Manufacturers Association has said that while it is thankful to the government for granting minor relief by reducing Federal Excise Duty from Rs. 500 per ton to Rs. 400 per ton effective July 01, 2012 in the budget for the financial year 2012-2013.

APCMA expressed dismay that actual reduction in excise duty felt short by Rs. 150 per ton compared to the promised reduction and the market had already factored in a much higher relief. Prices per bag had registered a decline of Rs. 20 per bag during May.

“However, we need government initiatives that could increase cement consumption which is only possible if the government abolishes Federal excise duty on cement as it is a punitive duty and curbs consumption,” said a spokesman of All Pakistan Cement Manufacturers Association.

In the federal budget 2012-2013, government has made a significant amendment by inserting section 153A to the Income Tax Ordinance, 2001. According to section 153A, the manufacturers shall collect 1% tax on gross sales price from their distributor/dealer/wholesaler.

The proposed provision appears to be aimed at documentation of economy as well as broadening of tax base. However, this provision shall not only stress the cash flows of those distributor/dealer/wholesaler who are already paying final tax on their commission income but also impact the cement prices by Rs. 4 per bag.

In the federal budget 2012-2013, the government has increased annual token tax on vehicle carrying goods from Rs. 1/kg to Rs. 5/kg. The impact of this increase comes to Rs. 1 per bag.

On the other hand, Ministry of Water and Power, Government of Pakistan, vide its notification no. 506(I)/2012 dated May 16, 2012 has increased the power tariff and its average impact to cement industry is Rs. 1.7 per Kwh. Ministry of Water and Power also charged Rs. 1.97 per Kwh as fuel price adjustment for the month of April 2012. The impact of these increases for cement industry comes to Rs. 19 per bag.

Ministry of Petroleum and Natural Resources has increased gas infrastructure development cess from Rs. 13 mmBTU to Rs. 100 mmBTU for industrial sector. The impact of this increase for cement industry comes to Rs. 2.40 per bag.

Cement sector, being a process industry is always required to maintain adequate stock levels for smooth operations. Coal prices have dropped to US $ 95 per ton FOB South Africa, but during the current financial year, average cost to the industry has been around US $ 108 per ton, the same price as in last financial year. The cement industry did not yet get any benefit from reduction in coal prices as Rupee devaluation is expected to offset reduction in FOB price.

He said the cement industry is not asking for subsidies but prudent government policies that should boost the construction industry. The government should come up with two or three large mega projects that are badly needed in the country; he said adding that Pakistan is perhaps the only country in the region that has surplus cement but its cement consumption per capita is the lowest.

He said that local despatches of the industry have decreased by 7.38 percent from 2,241,326 tons in April 2012 to 2,075,936 tons in May 2012 with the North region is suffering the most as its despatches shrank from 1,834,460 tons in April 2012 to 1,633,993 tons in May 2012 whereas the South region has seen a nominal increase from 406,866 tons in April 2012 to 441,943 tons in May 2012.

The spokesman said that cement exports provided some relief to the industry however after few promising years the exports are also on decline. He said in the first 11 months of this fiscal the cement exports have declined by 8.64 percent.

Regarding cement prices the spokesman said that cement is one of the few commodities that are available in Pakistan below international rates. “Its price is Rs. 100 per bag higher across the border in India,” he said adding that this is mainly due to low cement demand in the country. Over 27 percent of the installed capacities are not operative due to lack of demand in the country, he added.

For more information, Contact:
All Pakistan Cement Manufacturers Association
Secretary General
House No. 27-28/3A FCC, Gulberg-IV, Lahore.
Tel: 042-5871632 – 33
Fax: 042-5874442
Emil: apcma@apcma.com

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