‘VAT to put cement sector in trouble’.

Cement sector may face some tough time after the imposition of value-added tax (VAT), as the sector is already under the huge tax burden, industry officials
told Daily Times.

The sector may also witness some negative developments in the upcoming budget of fiscal year 2010-11, as unlike past budgets lower Public Sector Development Programme (PSDP) targets and implementation of VAT this time, would remain key concerns for the sector, they added.

The 16 percent general sales tax on cement sales would be replaced with 15 percent VAT. A one percent reduction in VAT would have no impact as cement margins are already declining due to excess supply in the country, they said.

Documentation at dealers’ stage through VAT may result in slowdown in sales or some increase in final consumer price. Moreover, cement dealers with annual turnover of Rs 7.5 million would be brought under the VAT regime.

The federal excise duty of Rs 35 per bag would remain intact next year, as the cash crunched government would not reduce any avenue for tax collection, they said, adding that the government has already allowed in-land freight subsidy of 35 percent to cement manufacturers to enhance export sales and this is likely to continue next year.

They were of the view that with higher construction activities by the private sector and recovery in economic activities, the total cement despatches are expected to improve by 11 percent to 34 million tonnes in FY 2010. The county has 15 million tonnes of cement export potential (including both bulk and bagged cement) in 27 countries.

Afghanistan is most likely to be a permanent market due to lack of availability of limestone while the demand may rise to 15 million tonnes from the current 2.5 million tonnes, they said.

In the last decade the demand for cement increased by 235 percent to 33.2 million tonnes while, supply, due to expansions has increased to 44.8 million tonnes - excess supply of 11.6 million tonnes. The Pakistan cement sector may witness an expansion phase in 2014 due to pickup in local and regional demand, an analyst said.

Currently, the combined installed capacity (35.9 million tonnes in North and 8.9 million tonnes in South) stands at 44.82 million while Fauji Cement’s 2 million tonnes project is expected to come online this year, which would increase name plate capacity to 46.82 million tonnes. After this, Pakistan would be included in top 20 cement producers, they added.

They key challenges highlighted include higher indirect taxes (Rs 700 per tonne fixed excise duty, 1 percent special excise duty) which make Pakistan’s cement less competitive against regional players - India and China.

With huge potential of exports, Pakistan’s cement industry requires the government to take effective measures to support export sales with reduction in port costs (port duties and dock labour cost), increase of rebate on exports, separate births at ports for export clinker and cement, they demanded.

The cement industry is investment intensive and the reduction of interest rates would reduce the cost and consequently cheaper cement can be sold to the end users, which can encourage construction activities.

Cement industry is one of the highest taxed industries and there is a good case for government to consider either abolishing excise duty altogether or at least reducing it by half. This measure would also help in giving momentum to the construction activities, as we should be able to reduce the price of the cement accordingly, he said.

Source :- dailytimes.com.pk