Calm down!

Cement dealers are irate. The association representing cement dealers went on a strike after the government announced an increase in withholding tax on non-filers whilst strong arming dealers and retailers into installing point-of-sale (POS) machines. They argue that most dealers in the cement sector are too small, and too uneducated to operate the POS machines and register (and file) for sales tax.Cement manufacturers association meanwhile believes this move would not yield any additional revenue to the government as the sales tax on cement retail price is paid for by the manufacturer. It doesn’t take a genius to guess that the tax collector is running out of ideas chasing small fish and hoping to shore up its revenues. It may not accomplish its goals quite so easily.

For one, dealer strikes affects demand which affects, yes you guessed it, actual tax collected. Increase in any form of taxes feeds into end-user prices which also—as is so evident—hurts demand, which also affects actual tax collected. The demand trend is already sobering and prices have surged untamed. In fact, over the past five weeks, average cement price across the country went up by a net of Rs178 per bag. For various markets in the north, the price hike has been even more significant, where prices were up by more than Rs200 (Islamabad -230, Lahore 216, Quetta 200). Since May-2024, prices have only been increasing, particularly at the heels of the new budget and in the coming weeks, chances are they will continue to go up. For one, the Punjab government announced increase in royalty rates on limestone which will raise the cost of limestone to Rs55 per bag compared to Rs19 previously. This will certainly be passed on to the consumer in the form of the final retail price.

Prices in the north are presently ahead of plants located in the south by roughly Rs200. The royalty which could have an impact upwards of Rs36 per bag allows the plants in the south to maintain (and increase) a significant price differential with manufacturers up north. This is to benefit them by gaining on demand. However, what appears most likely is that cement plants in the south will follow their counterparts’ suit and hike prices. What manufacturers lose in volumes, they will make up for in price—to a certain degree, obviously. While major construction projects will still find money in other heads to cover the cost overruns, the real loser here is that one customer who will put off constructing on their long vacant plot for one more year till things “calm down”, or a small dealer that is run out of business before it could take off, or the daily wage worker, a reluctant participant of a supply strike, just looking for a construction job.