Pakistan’s top cement manufacturers have asked the government to cut taxes or else they may have to raise prices, which leaves economic managers with the option to either take a Rs20-billion hit on revenue or let prices go up by around 10%.
The market price of a 50-kilogramme cement bag is in the range of Rs525 to Rs600, depending on the region. The manufacturers believe that prices can be kept at this level only through a one-third reduction in federal excise duty, revision in the valuation rates of inputs and a review of the policy of charging 10% advance tax from those dealers who are not on the Active Taxpayers List, according to sources in the Federal Board of Revenue (FBR).
The construction sector remains the priority of Prime Minister Imran Khan. The premier will not like to see an increase in cement prices, which will not only fuel inflation but will also affect output of the construction sector.
The cement manufacturers met with Adviser to Prime Minister on Finance Dr Abdul Hafeez Shaikh at his office the other day, according to sources in the FBR.
In his meeting with Shaikh, Mian Mansha – Pakistan’s top billionaire – also urged the government to further review the tax regime for the cement sector. He appreciated the government for reducing the federal excise duty in the budget but urged Shaikh to further cut the taxes, according to sources who attended the meeting.
Before the budget, the cement manufacturers wanted to increase prices by Rs100 per bag but the government promised to cut the federal excise duty (FED) from Rs2 per kg to Rs1 per kg to stop the surge in prices.
However, in the budget, the government slashed FED by just 50 paisa per kg due to fiscal implications of the decision.
Just two months after approval of the budget, the cement manufacturers have asked the government to cut taxes or else they will be compelled to increase prices by Rs50 to Rs70 per bag.
The government’s tax collection from the cement sector has been on the rise for the past five years, owing to a constant increase in FED rates. The Rs2-per-kg FED generated revenue of around Rs75 billion in the last fiscal year.
If the government did not reduce FED and review the advance tax, the manufacturers may have to increase prices in the range of Rs50 to Rs70 per bag, a leading manufacturer said on Tuesday, while speaking on condition of anonymity.
Generally, most of the cement manufacturers were incurring losses, particularly the new plants, he added.
He said the manufacturers did not increase prices before budget after the government promised to cut FED by half. But it did not fulfil the promise.
Lucky Cement’s sales fell by 12.8% and its gross profit margins shrank from 29% to 14.5% in the last fiscal year. The company’s net profit also went down to Rs3.34 billion, the lowest since 2010.
However, according to an FBR’s working, net profit margins of the cement manufacturers were in the range of 25% to 30%. Tax authorities believe that the fuel and power cost was in the range of 50% to 60% of the total cost of sales, the raw material and packaging cost was around 20% and other cost was in the range of 15% to 25%. The financial cost is estimated at around 4%.
However, due to the policy of the central bank, the interest rate shot up to 13.25% in the last fiscal year, which adversely affected companies’ balance sheets.
Limestone and clay were the major raw materials, comprising up to 95% of the total inputs. Tax authorities were of the view that the manufacturers were not disclosing their actual cost.
The cement manufacturers also deduct advance tax from dealers who do not appear on the Active Taxpayers List. The rate of advance tax for tax return filers is 5% and for non-filers it is 10%.
FBR sources said it was not immediately possible for the government to further reduce FED and withholding tax. However, the valuations, being determined under the Statutory Regulatory Order 140, could be reviewed to provide some relief in tax determination on inputs, said the sources.
Sources said FED could not be reduced without legislation that the government could not afford in present circumstances.
Despite repeated attempts, FBR’s Acting Chairman Javed Ghani did not give version for this article.
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