Following increase in sales tax and changes in tax structure, the cement manufacturers have announced increase in cement prices by Rs 30-35 per bag in the domestic market. Industry sources told Business Recorder on Saturday, the cement industry is happy with the massive allocation for Public Sector Development Programme (PSDP) in the budget 2013-14 but they are worried about increase in the sales tax.
The federal government has proposed some 1 percent increase in the sales tax from 16 percent to 17 percent, besides making some changes in the tax structure. Sales tax will now be paid on retail price of cement instead of ex-factory price. Sources said ex-factory and retail prices have a difference of some Rs 40-50 per bag as ex-factory price is exclusive of transportation expenses and dealers' commission, etc.
Although, one percent surge has been proposed for next fiscal year, it has become effective from June 13, 2013 and now the Federal Board of Revenue (FBR) is collecting sales tax at the rate of 17 percent aimed at achieving tax revenue target for the year 2012-13. The increase in sales tax by one percent and changes in the taxation structure have resulted in some Rs 30-35 per bag impact on the cement industry. Accordingly, the cement manufacturers have decided to raise cement price by Rs 30-35 per bag in the domestic market.
With current surge, average cement price in the north zone has mounted to Rs 480-490 per 50-kg bag compared to Rs 450-460 per bag before the budget, they said. Sources said in order to comply with the FBR order, the cement manufacturers in the south zone are also considering increasing price in the same ratio. The cement prices in the south zone are likely to increase some time this week.
"Although, so far the cement manufacturers have not increased prices in Sindh, however, they have intimated about an increase of Rs 35 per bag from Monday (June 17)," said Shahzad Ahmed, a cement dealer. Presently, cement is selling at Rs 450 per bag in Karachi and after the proposed raise, maximum cement price will reach Rs 485 per bag at retail stage, he added.
The cement industry is not happy with changes in the taxation structure and termed it a new challenge for the industry. This is a difficult task for the industry to mange sales tax on retail price as transportation fares are not equal for all cities. "We'll have to change our software as well as accounting procedure to comply with the new tax policy issued by the FBR," a leading cement manufacturer said.
He said cement sales are already on decline in the domestic market due to less infrastructure development spending. As per budget estimates the federal government has allocated Rs 388 billion for PSDP during the next fiscal year 2013-14. The higher allocation for PSDP is a good indication for the industry and cement and steel industry will be major beneficiaries of this spending, he added.
According to All Pakistan Cement Manufacturers Association (APCMA), cement sales in May 2013 stood at 2.89 million tons. Local sales were stable on a YoY basis at 2.10 million tons because of labour shortage due to wheat harvesting season, while transportation bottlenecks due to general elections last month is another reason. In addition, implementation on maximum load limit by the National Highway and Motorway has also affected the cement sales.
On the other hand, cement exports remained steady as the industry was able to export 0.79 million tons in May. Cumulatively, total sales have shown a growth of 4 percent during the first 11 months of current fiscal year including 5 percent growth in local sales and some 2 percent decline in export volumes. Industry expert said decline in international coal prices during FY13 will be a boon for the cement producers running coal-based plants.