KARACHI: Amid looming fear of a further hike in the price of cement after an increase in royalty rates on raw materials by the Punjab government, domestic sales shrank by 11.41 per cent to 2.463 million tonnes in July from 2.78m tonnes in the same month last year.

The cost of construction has already risen following a 20pc jump in cement bag rates after the imposition of Rs100 per 50 kilogramme bag of Federal Excise Duty (FED) in the budget. Consumers would further bear the negative impact of high cement prices after the increase in royalty rates by the Punjab government on raw materials.

As per data released by the All Pakistan Cement Manufacturers Association (APCMA), export volumes grew by 22pc to 547,162 tonnes from 449,792 tonnes in July 2023.

However, the overall cement despatches (local and exports) fell 7pc to 3.010m tonnes from 3.230m tonnes in July 2023.

Export volume rises 22pc in FY24

A spokesman for APCMA emphasised that higher taxes and increasing input costs were hampering the sector’s performance. This is the 11th straight month during which domestic sales registered a decline, reflecting sluggish economic activity.

The cement industry urged the government to review its taxation policies to reduce the burden of heavy taxes on the sector.

While supporting the government’s documentation drive, he said forcing small retailers to register for a complicated sales tax system and installing point-of-sale is unlikely to yield any additional revenue as being a 3rd Schedule item, the whole amount of sales tax on consumer price is already being paid by the manufacturers.

Price hike feared

The increase in royalty rates will make a price impact of Rs30-50 per 50kg cement bag for Punjab-based plants. The notification is effective from July 1.

The Punjab government circulated the notice on August 1 2024 in which rates of royalty on raw material for cement manufacturers had been determined at 6pc of the ex-factory sale price of cement or clinker.

The notice mentions the names of limestone and argillaceous clay used for the purpose of cement manufacturing.

Nasheed Malik of Topline Securities said that before the circulation of this notification, royalty is now expected to increase from Rs20 per bag to Rs70 (6pc of the ex-factory price) for Punjab-based manufacturers.

He said companies are currently evaluating the notification and will pass on the impact to consumers in terms of higher retail prices, thus creating price disparity in different provinces.

In the budget for FY25, he said the Punjab and Khyber Pakhtunkhwa governments had already increased royalty on limestone from Rs120 to Rs250 per tonne. However, this notification of 6pc of ex-factory price is likely to supersede that Rs250 per tonne notification. He said 48pc of the installed capacity in the north is located in Punjab.

Published in Dawn, August 4th, 2024