Cement producers start inspection of sales, export: Tax evasion
By Nasir Jamal
LAHORE, Oct 9: The cement producers have started self-inspection of sales and exports originating from all factories in the country to omit (even slightest possibility) of tax evasion.
“We have hired services of an independent firm that is manning exit points of each cement plant in the private sector to monitor every truck leaving the premises. Each factory is manned by three inspectors to keep vigilance 24 hours a day,” All Pakistan Cement Manufacturers Association (APCMA) chairman Tariq Saigol told Dawn here on Thursday. “This single step alone precludes the chance of tax evasion by manufacturers. We are doing what the Central Board of Revenue should have been done,” he added.
Similarly, APCMA has also three inspectors each at Torkham and Chamman to monitor arrival and departure of trucks carrying cement for Afghanistan. “APCMA monitors sales to Afghanistan both at the gates of a cement plant as well as at the border,” Mr Saigol said.
The report of monitoring is daily sent to the APCMA office in the Punjab capital. “The primary purpose of monitoring output and sales of the cement producers was not only to rule out chances of excise duty evasion, but also to remove the distortions created in the market and the price regime by them,” said an APCMA official.
CAPACITY UTILIZATION: The cement sales grew by whopping 14.58 per cent — the highest in the last 20 years — to 11.388 million tons in FY02-03 from 9.939 million tons in FY01-02.
During the first quarter of the current year, total dispatches by the cement sector stood at 3.2 million tons, including 260,000 tons exported to Afghanistan. This compares to dispatches of 2.74 million tons — including 79,000 tons sent to Kabul — during the same period last year. If the trend sustains, the sales may go up to 13 million tons by the end of this fiscal.
The capacity utilization of the cement factories has also gone up to 76.64 per cent in the first three months of FY03-04 against 68.24 per cent during the same period last year.
“New public sector infrastructure projects like Ghazi Barotha, exports to Afghanistan and such other factors have contributed to the growth in sales,” Mr Saigol said. “We are encouraged with the growth rate and are positive that the trend would continue in the years to come. Investment in housing, infrastructure projects and industry has resuscitated hopes of higher capacity utilization as well as sales.”
The cement industry, it appears, is slowly but steadily coming out of the crisis it was faced with in the 1990s caused by growth in production capacity that rose to around 18 million tons a year and stagnation in demand at 9-9.5 million tons a year due to cuts on public development budget and widening budgetary deficit. “The imposition of sales tax, high excise duty, price wars and several other factors led to huge losses,” the chairman said.
“Though the industry is moving on the right path, it is yet not out of woods as another 4.5 million tons capacity will be added to the current in the next two or three years. However, growth signs are positive and we hope they would sustain. But we still have a long distance to cover,” he said.
The demand is likely to increase further if the government, as it plans to, begin actual work on the water storage projects like Kalabagh Dam or Bhasha Dam.
EXPORTS: Mr Saigol said Pakistan’s cement exports to Afghanistan could jump to two million tons per year “provided the process of reconstruction picks up to the anticipated level”. He said the cement exports to Afghanistan in FY02-03 rose to 430,000 tons from 106,000 tons in FY01-02. The cement exports to Kabul in the first quarter of FY03-04 have already touched 260,000 tons or more than 60 per cent of what was sent last year.
PRICES: Mr Saigol believes that the cement prices could come down to Rs180 per bag provided the government abolishes excise duty on it, and capacity utilization increases to 80 per cent a year. The government has already cut down excise duty on cement 25 per cent in the budget 2003-04.
At present, cement prices range between Rs200 and Rs225 per bag depending on brand and proximity or otherwise of a particular market from the area of production.
“The prices plunged to Rs185 a bag in October 2002 but started to recover in March this year. Before the budget, the rate ranged between Rs232 and Rs240. The reduction in excise duty left total impact of Rs14.75 per bag. Consumers are still paying tax to the tune of Rs65 per bag,” the chairman said.
He denies that cement producers have formed a “cartel”. “It is incorrect by definition. We are neither regulating the prices nor output. The Monopoly Control Authority had asked the producers to furnish the information required to judge the issue. We have done so. We’ve calculated the cost per bag (inclusive of tax component and 15 per cent return for shareholders) at Rs217. It’s true that more efficient units are doing better than others, but it is what the average cost of production per bag is. Hence, there is little space available to us for slashing the prices.”
