Lahore- The consumers should be ready to pay at least Rs 25-30 more for 50kg cement bag from July 1, as the recently-announced federal budget imposed overall 19 per cent sales tax - 17 per cent general sales tax and 2 per cent additional sales tax on dealers and stockists, who are mostly unregistered.
Industry sources said that there are several inflationary effects of budget on cement, including increase in sales tax from 16 per cent to 17 per cent. The second impact is hidden which will also increase the cost by about 1 per cent if compared to other industries. Earlier, sales tax was imposed on ex-factory price level, which was much below the retail price. Hence, the ratio of tax on it was also low owing to exclusion of retailer margin, loading, unloading charges and transportation cost.
All Pakistan Cement Manufacturers Association Chairman Aizaz Mansoor Shiekh observed that the shifting of sales tax from ex-factory rate to the retail price has also increased the cost of manufacturers, as tax on retail level will also include the margin of dealers as well as transportation cost which amount to Rs100-125 per kg bag of cement.
“Moreover, all retailers and distributors are non-registered with the government, hence an additional 2 percent sales tax would also be imposed, totaling tax of 19 percent on cement sector.” However, cement industry experts are of the view that highest-ever PSDP allocation with focus on projects such as dams, highways, housing colonies will further strengthen cement demand which is already up by 5 per cent in 11MFY13.
It is to be noted that PSDP has been increased by 32% in FY14 to Rs1,155b as against Rs873b in previous year. Federal excise duty that was to be slowly phased out remained untouched in the budget and is still at Rs400 per ton of cement. Aizaz Mansoor stated that energy, which constitutes more than 50 per cent cost of production of cement, has taken a quantum jump during last few years, almost doubling the production cost but the cement manufacturers have absorbed most of it.
The ever-increasing prices of diesel, coal and electricity are the major factors contributing to the rampant hike in the cost of production, but the industry has never passed this on fully to the already overburdened consumers, he claimed. APCMA chairman maintained that the recent surge in transportation cost, due to implementation of the newly-introduced axle load limit, has already escalated freight costs of cement as well as coal for local manufacturers.
The systems should be introduced gradually so that the related businesses could adjust their requirement and resources accordingly, he suggested.