Underutilised cement plants likely to pay more tax

Published November 20, 2021
At the end of the last fiscal year, the country’s cement-making capacity was 69.3 million tonnes. — Reuters/File
At the end of the last fiscal year, the country’s cement-making capacity was 69.3 million tonnes. — Reuters/File

KARACHI: The government plans to impose a higher tax rate on underutilised cement plants, according to Muzzam­mil Aslam, spokesperson for the Ministry of Finance.

“The government is considering a revision in tax rates related to capacity utilisation to bring down the price of cement. Those who increase production will be exempted from it,” he tweeted on Friday while noting that the ministry will soon send a summary to the Economic Coordination Committee (ECC).

Speaking to Dawn, Mr Aslam said cement-makers are keeping the retail price at an elevated level by controlling the industry output. “They go to court and get stay orders when the Competition Commission of Pakistan takes action against them,” he said.

Units going to raise output may be exempted

At the end of the last fiscal year, the country’s cement-making capacity was 69.3 million tonnes. The industry used almost 84 per cent of its available capacity to produce cement.

“Underutilised plants will have to pay a higher federal excise duty (FED). The ECC will decide the extent of the increase in its rate,” he added.

The industry currently pays the FED of Rs1,500 per tonne or Rs1.50 per kilogram of its output.

According to AKD Securities research analyst Shahrukh Saleem, local cement despatches dropped 5pc in October from a year ago but increased 15pc on a month-on-month basis. “Overall, we expect the local demand to remain strong for 2021-22 as economic activity continues to pick up.”

As for raising the FED rate at a time when input costs are on the higher side and the exchange rate is volatile, Mr Aslam said plants that are sufficiently utilising their production capacities won’t get affected by the proposed tax hike.

“Who should we protect: consumers or cement makers? Isn’t it harmful for the country that they’ve joined hands and set a higher market price?” he said. The industry-wide capacity has grown at an annualised rate of 8.6pc in the last five years. The level of capacity utilisation has been in the range of 74pc and 91pc during these years.

Speaking to Dawn, Arif Habib Ltd Head of Research Tahir Abbas said determining its optimum level of production is every company’s prerogative. “I don’t think the government will collect a lot of revenue by increasing the tax rate on underutilised plants. The government’s focus should be on promoting the free-market economy rather than introducing price-setting mechanisms,” he said.

Mr Abbas insisted that rising raw material prices and depreciation have mainly been contributing to the 15-20pc increase in the retail price of cement during the preceding 12 months.

Many cement-makers, including Lucky, Attock, D G Khan, Bestway, Fauji, Flying, Cherat, Kohat and Maple Leaf have already announced capacity expansion plans, according to data compiled by BR Research. These companies will add a total capacity of 30m tonnes and bring the industry-wide output potential to 100m tonnes by 2024-25, it said.

“Utilisation levels come down after every round of capacity expansion as the base gets bigger. The government should realise that a variety of factors, including seasonality, drives capacity utilisation,” said Mr Abbas.

Published in Dawn, November 20th, 2021

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