KARACHI, July 23: Consumers are yet to fully benefit from the elimination of 10 per cent excise duty on paints as only a few manufacturers in the organized sector have slashed prices, while the entire informal sector has yet to follow the suit.

Even a number of paint makers in the organized sector have been reluctant to cut down prices after the withdrawal of the excise duty in the 2004-05 budget announced on June 12.

Paint dealers in the city said that the manufacturers in the informal sector had not reduced the rates. "We do not know whether they will cut prices or not", they added.

Market sources say the government's decision to remove excise duty on paints has proved a sheer disappointment for small paint makers, some organized paint makers and excise duty collectors.

Marketing their products with strange names - the majority of small paint makers and some organized sector players, despite producing unlimited quantities, had either been totally evading excise duty or had been paying a meagre amount to the national kitty in connivance with the taxation officials.

It was also assumed that the state coffers had not been receiving the excise duty collection at the retail sales to its full potential because a lot of manufacturers were not showing the real production volumes of their units to the excise collectors.

With the complete withdrawal of excise duty followed by price cut by some key market players - informal sector paint makers now find themselves in trouble because they are confused whether to cut price or not since they have not been either paying the duty in full or paid paltry amount.

In a paint market, dominated by 50-50 per cent both by formal and informal sector - small paint makers now appear a bit nervous with the budgetary decision because they may lose market share if they do not cut prices.

At a time when the sales volumes of all the paint makers have been booming due to resurgence of housing and construction sector - price factor still holds a lot of interest for any company to be competitive in the market irrespective of the quality.

No doubt that the mushroom growth of paint makers in the informal sector has provided a much relief to the lower and middle income group people who could not afford to buy costly paints produced by some multinationals and others.

However, price-conscious consumers are still bound to compromise on the quality factor despite benefiting from the saving in terms of rupee while buying mediocre quality paints that are not long-lasting.

According to Economic Survey 2003-04, there are 22 units in the organized and over 400 units in the non-organized paint sector. Around 50 per cent of the domestic demand for paints is met through production in the formal sector while the remaining comes from the informal sector.

Market sources said that out of 22 paint makers in the organized sector, falling under the membership list Pakistan Paint Manufacturers Association (PPMA) - around a dozen makers are associate members of the PPMA and have not reportedly reduced the prices yet. Only three to four companies (multinationals and others) have brought down their prices.

"I think competition between formal and informal sector paint makers will further intensify after price cut of 10-13 per cent by organized sector," PPMA chairman Sami Ahmed Shaikh said.

He was of the opinion that over 500 paint makers existed in the formal sector and said that Finance Minister Shaukat Aziz had announced the withdrawal of the excise duty on paints after PPMA's over a decade old struggle. "This decision will further improve competition and sales of paints," he added.

He also confirmed that the majority of informal paint makers have not reduced the prices yet despite budget announcement on June 12, 2004. According to the Economic Survey, the per capita consumption of paints in Pakistan is very low at 0.8 per kg per annum compared to four kgs in South East Asian nations, 22 kgs in the developed countries and 15 kgs for the overall world, the survey says.

Demand of paints is rising due to boom in the housing and construction sector. During July-March 2003-04, production of paints and varnishes both solid and liquid grew by 53.7 and 36.5 per cent respectively.

Sales volume of Berger Paints went up to Rs853 million in July-March 2003-2004 as against Rs687 million in the same period of last fiscal. Despite increased selling and administrative expenses to increase market presence, the company achieved 63 per cent higher profit before tax in nine months to Rs33.345 million as against Rs20.475 million in the same period last year.

Net sales of Buxly Paints in July-March 2003-04 stood at Rs122 million as against Rs103 million in the corresponding period of previous fiscal. Turnover of ICI in paint segments for the first quarter (January-March) of 2004 stood at Rs796 million as against Rs638 million while operating profit rose to Rs102m from Rs90m over the same period last year.

These companies expect a good level of demand for both decorative and industrial paint in future but said in their reports that margins are coming under pressure from raw material cost increase.