APCMA budget proposals: call to abolish tax on power bills of cement units

The cement industry has suggested to the Ministry of Finance to abolish withholding tax on electricity bills of cement factories and reduce the federal excise duty (FED) on cement from existing Rs 500 per ton to Rs 300 per ton in budget (2012-13), ie a reduction of Rs 200 per ton.
Sources told Business Recorder here on Tuesday that All Pakistan Cement Manufacturers Association (APCMA) has submitted its proposals to the Ministry of Finance for consideration in coming budget (2012-13). According to the association, cement industry is subject to FED of Rs 500 per ton and 16 percent sales tax. These taxes come to around Rs 76 per bag.
This incidence of high taxation encourages evasion and negatively impact consumption. In last year's budget speech, it was announced that the FED on cement shall be phased out in three years. A reduction of Rs 200/MT is proposed in the first year and equal reduction of the balance of Rs 500/MT in the next two budgets. The government may reduce FED stepwise to zero as announced and till same is abolished.
The Federal Board of Revenue (FBR) may reinstate the system of Supervised Clearance at the cement factories. If it is not possible for FBR to post excise inspectors at the cement units, APCMA is willing to post audit firm representatives at the cement units at its own cost and/or continue with voluntary monitoring of dispatches which has a salutary effect in increasing government revenues in current fiscal despite reduction in incidence of taxation.
It has further proposed that the cement industry is one of the major consumers of WAPDA and KESC, 5% withholding tax severely affects he cash flow of already ailing industry. It is proposed that collection of withholding tax on electricity bills should not be made from cement sector because most of the companies have to file tax refund claims. The industry has informed the Finance Ministry that the cement production capacity in Pakistan has touched 44.217 million tons per annum. About 84% of the capacity is situated in the North and 16% in the South. During the first nine months of current financial year, domestic demand for cement was a mere 17.386 million tons and exports amounted to 6.243 million tons including Afghanistan, leaving surplus unutilised capacity of 9.54 million tons.
During the last financial year, 11 cement units suffered loss before taxation aggregating to Rs 5.681 billion while 7 cement units, of which 2 are located near Karachi in close proximity to the sea port, earned profit of Rs 5.982 billion. At the end of last fiscal, industry debts to financial institutions have risen to a massive Rs 125.3 billion and cement units located in the North are particularly challenged owing to low demand and are unable to service their debts.
It has been further proposed that duty drawback claims against export of cement to Afghanistan pertaining to the period July 2005 to June 201 were not accepted by the Customs authorities due to non availability of original Afghan Customs document called "Gumrak" as the original is retained by the Afghanistan Custom authorities. The association made many representations to the Ministry of Commerce and Federal Board of Revenue who finally agreed on August 18, 2011 that duty drawback claims would be entertained against photocopy of Gumrak.
It is now requested to kindly allow 210 days to file claims pertaining to the period when original "Gumrak" was mandated to be provided but was unavailable due to retention by Afghan authorities. The cement industry in Pakistan has been using imported coal as fuel for manufacturing of cement.
The increase in input costs, especially transportation charges and decrease in cement export prices in the international market, has made Pakistan cement industry less competitive in the global market. With a view to decrease cost to become competitive, cement industry is looking for different options like reduction in fuel cost by using alternate energy resources. Pet coke is a fuel which is widely used world-wide as a substitute of coal in cement industry.
Presently the rate of customs duty on non-calcined Pet coke (HS Code 2713.1100) is 5% while rate of duty on Coal (HS Code 2701.1900) is nil. Now coal is being substituted by Pet coke due to its high energy value. It is therefore, proposed that customs duty on Pet coke be reduce to zero percent like coal.
It is also proposed that import of Pet coke (HS Code 2713.1100) be freely allowed from India via sea & land routes at Attari and Wahgah entry points as is being done in case of cement export from Pakistan to India. Sources said that the cement industry has successfully developed technical expertise and capability to substituted coal as calcining material partially with shredded rubber scrap, which is cheaper then coal. The current C&F Karachi prices of coal are US $140 per ton while price of scrap rubber tyres is US $75 per ton.
It is internationally recognise that partial substitution f coal with shredded rubber scrap is more environments friendly. The annual imports of coal are presently 5.0 million tones of which, 20% can be substituted by rubber scrap. Thus 1,000,000 tons of coal can be substituted by this cheaper material, which will result in a saving of US $65 million in the import bill. Presently, shredded rubber scrap is being cleared under PCT heading 4004.0090 chargeable at the custom duty rate of 20% ad valorum. The industry needs to make capital investment 10 enable it to use scrap rubber and the rate of customs duty is an impediment in making this investment.
It is proposed that custom duty on import of rubber scrap tyres be made zero. According to the APCMA, there is no local source of quality Sack Kraft paper due to non availability of quality raw material (pulp) in the country. A Paper Mills, in Charsadda is the only local manufacturer of sack Kraft paper, which has limited production capacity.
It produces inferior quality Kraft paper using locally procured used paper sacks and mixed waste of Kraft paper and supplies it to its captive Paper sack plant and Cement plant. The annual demand for sack Kraft paper from the cement industry is approx 55,000 tons, whereas the total local production is even less than 3,000 tons. Therefore, it is grossly insufficient to meet the demand for sack Kraft paper both in terms of quality and quantity".
During the period from 2008-09 to date, the Paper Mills located in Charsadda has only supplied less than 10 million cement bags to the industry, while presently annual demand of the industry is more than 360 million cement bag. Moreover, the decision to impose regulatory duty on sack Kraft paper will increase the cost of production for cement, the paper sacks industry will be adversely affected and either imported sack Kraft bags or the usage of Poly Propylene bags will increase, which is another environmental hazard. This will hurt the efforts of the government to encourage construction activities in the country and will hamper the much needed economic stimulus at this point of time.
It is proposed that regulatory duty should not be imposed on sack Kraft paper. It is also further proposed that custom duty on sack Kraft paper should be abolished or at least be reduced from 15% to 5% which is the prevailing duty rate of Poly Propylene granules. The ECC and Trade Development Authority approved inland freight subsidy on export of cement by sea, accordingly GOP issued a public notice dated March 26, 2010 allowing inland freight subsidy @35% till June 30, 2010.
The cement industry particularly those units located in the north zone exported cement on the assumption that the freight claims would be honoured. It is regretful that after a lapse of one and half years, no claim has been entertained. To date there are outstanding claims of Rs 287.686 million. It is requested that these claims be processed and settled immediately, the association added.