Cement industry paying Rs 195 per bag taxes

LAHORE: The cement industry is paying Rs 195 per bag taxes which are the highest in the region, besides 50 per cent increase in transportation cost after implementation of axel load policy resulted in huge losses by the industry during the last nine months.

The cement manufacturing units started incurring losses after the implementation of new taxes as the government increased the duty taxes by 33 per cent on the sector from the budget 2019-20. The freight cost is increased to Rs 75 per bag from Rs 50 per bag from cement manufacturing units to the end user after implementation of axel load policy introduced in November 2019. However, due to economic contraction, the industry did not pass on the added cost into the prices for revival of the economic activity in the country.

According to the data available with The News, the seven cement companies Attock Cement, Bestway Cement, DG Khan Cement, Fauji Cement, Kohat Cement, Lucky Cement and Maple Leaf Cement have declared losses in the third quarter of the ongoing fiscal year. The five north-based plants incurred gross loss in the third quarter and are unable to recover the production cost.

In the third quarter, the sector average profitability (after taxation) has declined by 123 per cent from a profit of Rs 8.50 billion to a loss of Rs 1.97 billion, while in nine months, the profitability has declined by 106 per cent from a profit of Rs 27.6 billion to a loss of Rs 1.56 billion due to unfavourable economic policies of the government and economic recession. The data shows that Attock Cement profit declined by 37 per cent, Bestway Cement by 117 per cent, DG Khan Cement by 214 per cent, Fauji Cement by 134 per cent, Kohat Cement by 159 per cent, Lucky Cement by 64 per cent and Maple Leaf Cement by 466 per cent.

In the third quarter, the units posted losses as Bestway Cement Rs 441 million, DG Khan Cement Rs 1.003 billion, Fauji Cement Rs 210 million, Kohat Cement Rs 381 million, Maple Leaf Cement Rs 1.281 billion.

However, the Attock Cement and Lucky Cement earned a profit of Rs 353 million and 999 million, respectively, which is 37 and 64 per cent lower than Rs 559 million and Rs 2.793 billion earned respectively in the corresponding period of the last fiscal year.

Suspension of trade to India had given another below to the cement sector as the cement export to India was ended since the Pulwama attack in February 2019. Further, in August 2019, Pakistan also suspended the bilateral trade with India.

During this period, cement export to India was suspended which also added to the losses of the industry. Earlier, Pakistan was monthly exporting on average 75,000 tons of cement to India.

On the other hand against the backdrop of construction activities started after China Pakistan Economic Corridor (CPEC) projects, the cement industry increases its production capacity in the country, anticipating growing demands. The production capacity of the cement sector has increased from 44 million tons in 2014 to 69 million tons by today. However, due to political instability in the country after the PANAMA leaks, the CPEC projects were slowed down which adversely affected the economic activity in the country.

The PTI government has failed to maintain the economic growth which also affected the cement industry adversely. However, the decision of increase in production capacity was backfired due to poor economic policies of the government which resulted in the increase of the cement industry debts from Rs 62 billion in June 2014 to Rs 180 billion in June 2019.

Now the industry is expecting that commencement of work on mega projects and housing schemes announced by the government will bode well for the cement manufacturers and other construction industry.

Further, the government only facilitates the builders and property dealers by reducing duties and taxes on land transfers under the Prime Minister Construction Industry Relief Package while nothing was announced for the other construction sectors including cement manufactures.

However, the cement industry has welcomed the package as they believed that resumption of the construction industry will ultimately increase the cement consumption, create employment and generate economic activities in the country. If the same situation of losses prevails, the industry might suffer closure due to debts and gross losses.

Spokesperson of Federal Board of Revenue (FBR) Dr Hameed Ateeq Sarwar said the cement sector showed tremendous performance before the Covid-19 pandemic.

Both sales and volumes registered almost double growth, he said, adding that the super profits exist in the sector so that the new players or existing players enhance the production capacity by adding more production units. Further, in the next three years, the production capacity of the sector would be doubled following the Prime Minister Construction Industry Relief Package which will result in increase in the cement demand.

On the taxes issues, he said that before the budget 2019-20, per kg tax was Rs 1.5 which increased to Rs 2 per kg. However, the tax imposed on the cement is not on the sector. The cement producers fully passed on the impact to consumers by adding to prices, he said and added taxation on the cement industry is not exceptional in Pakistan. Rather in the region, the taxes are applied on the similar pattern.

On the loss making units, he said the input cost of cement is very minor as it was produced from minerals available on surface. If someone does a deep analysis of the loss making units, it was not due to production loss, rather due to increase in financial cost due to heavy borrowing. Further, some losses occurred due to managerial issues, and such issues are faced in all sectors, the cement sector has no exemption from it.

He said the top six players of the cement sectors are in positive cash flow and in profits. So losses could not be justified due to increase in the taxes, he said.