Semi-public cement makers want capacity tax re-imposed

KARACHI (March 01 2003) : Major cement manufacturers have proposed imposition of capacity tax to curb the growing evasion of excise duty and sales tax, it is learnt.

The government is collecting about Rs 9.8 billion in central excise duty and Rs 5.35 billion in sales tax per year from the cement sector, after cigarettes and petroleum the third biggest source of revenue for the national exchequer.

With Rs 1000 per tonne excise duty and 18 percent (Rs 56 per tonne) sales tax on cement, total taxes constitute 58.58 percent of the ex-factory price of Rs 2,639 per tonne.

Despite a reduction in ex-factory price, from Rs 3.858 per tonne in April, 1999, to Rs 2,639 per tonne and a pick-up in demand, most of the cement units are utilising less than 70 percent of their installed capacity.

After the removal of excise staff from cement factories upon placement of the industry under self-clearance scheme, it is said, same private sector units are indulging in evasion of duties and taxes, which is hurting others specially the semi-public units such as Askari and Fauji Cement.

Up to June 16, 1994, there was fixed tax on the basis of capacity @ Rs 510 per tonne and sales tax was charged at 15 percent of the retail price ie around Rs 334 per tonne.

This cumulatively amounted to about 33 percent of the ex-factory price of Rs 2,560 per tonne.

In the budget 1994-95, this mode of collection on capacity basis was changed to levy on actual production. So, by mid-1998, cement prices had peaked to Rs 4,420 per tonne.

After allowing cement units to be installed by the private sector and disinvestment of nationalised units, there was an explosion in installed capacity in the cement sector with IFC – World Bank affiliate – in the forefront in financing new capacity.

But after the May Nuclear Test and economic slowdown, this sector has been in trouble as the government for four consecutive years reduced the public sector development programme.

The rise in energy cost during this period added to the woes of cement makers.

The anticipated support from sales for Afghan reconstruction is yet to materialise.

Things have perked up a little with revival of some construction activity.

However, a major breakthrough is not expected by analysts until the registration and documentation of real estate rights is modernised and made transparent with the induction of technology ie computerisation and a search mechanism with minimal effort is available to the lenders in the house building sector.

Secondly, banks need to repossess mortgaged properties with ease and without a major hitch in case of defaults in repayments.

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