The budget has been a game changer for the corporate industry over the years with a few sectors finding relief while others feeling the pinch.
This time it seems cement sector was the prime beneficiary while the fertiliser sector was the hardest hit, according to analysts.
Cement
The Federal Excise Duty (FED) on cement has been cut by Rs100 per ton to Rs400 per ton, which is lower than the industry’s proposal but still a move that will boost profitability, says a KASB Securities research note.
Custom duty on used tyres has been halved to 10% from 20% and implies a 1% positive impact for Lucky Cement’s fiscal 2013 earnings per share. Lucky Cement, the largest cement producer in the country, has shifted from coal to ‘tyre-derived fuel’ (TDF), generated by burning shredded tyres.
Tax on exports has been reduced from 1% to 0.5%, which will have a 0.8% positive impact on Lucky earnings per share and 1% for DG Khan Cement.
Consumer goods
Encompassing the populous measures that aim to provide relief to common masses ahead of general election, the Budget faired well for the pharmaceutical sector as well as consumer related firms, says a Topline Securities research note.
Customs duty on 88 pharmaceutical raw materials and other inputs has been halved to 5% from 10%.
This measure is expected to boost sales and improve margins thereby further improving profitability of pharma companies like GlaxoSmithKline, Abbott, Searle and others, adds the note
Tax relief has been announced on dairy investment or extension of the existing manufacturing facility.
Other than this sales tax on tea has been reduced massively to 5% from 16%. More than half of the tea consumed in the country is smuggled under the Afghan Trade Transit, a complain Unilever and others have made on various occasion.
These measures will help Engro Foods that is looking at expansion along with Unilever, one of the largest tea manufacturers in the country, adds the note.
Automobile
No change has been made in the duty structure of used and new cars which will be a sigh of relief for local automobile assemblers after there were rumours that regulations may ease for car imports.
Meanwhile, advance tax on purchase of locally assembled cars for 1,300cc to 1,600cc has been increased from Rs16,875 to Rs25,000. While this does not affect automakers directly, it will add to buyer’s cost and squeeze seller’s pricing power as the tax is collected at registration level, says the note.
Fertiliser
Gas development cess on feedstock gas has been increased to Rs300 per million British thermal unit (mmbtu) from Rs197 and gas used by captive power plants from Rs13 to Rs100 per mmbtu.
The Finance Bill 2013 does not separately state cess on fuel gas for fertilisers but it is assumed that Rs100 per mmbtu cess on captive power plants will be applicable to them as well, since fertiliser companies are charged at par with other industries operating gas-based captive power plants, according to the KASB Securities research note.
Published in The Express Tribune, June 3rd, 2012.
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The CCP needs to be alert and ensure that savings are indeed passed on to end-users and not go to fattening margins.