Pakistan budget brings relief measures to cement sector
Pakistan's Finance Minister Dr. Abdul Hafeez Shaikh has announced number of incentives and relief for various sectors including the cement industry in the Federal Budget July 2012 - June 2013.
Dr Shaikh announced an increase in the Public Sector Development Program (PSDP), which is also spent on infrastructure development, to PKR873bn, up 20 per cent from last year. Federal Excise Duty (FED) on cement pricea has been reduced by PKR100/t (PKR5/bag) to PKR400/t (PKR20/bag). In addition, there is a reduction in turnover tax from one per cent to 0.5 per cent for cement firms with tax losses. Customs duty on rubber scrap has also been reduced from 20 per cent to 10 per cent.
However, on negative note, the Minister announced an increase in gas cess by PKR87/mmbtu on captive power plants, which will increase the cost of power generation.
An official of the All Pakistan Cement Manufacturers Association (APCMA) told CemNet News that the overall impact of incentives will fade due to a new condition asking all manufacturers made with holding agents to collect a one per cent advance tax on sales. Also, a recent increase in electricity charges will reduce the profitability of the cement sector, he contended.
According to a report by InvestCap Research, the impact of the budget on the cement industry is being seen as neutral to positive. The government’s higher allocation on development spending during this election year may generate increases in local demand. This will boost domestic consumption in FY13 which has already seen an increase of nine per cent during the first 10 months of FY12. Moreover, a reduction in FED (if not passed on to consumers), low customs duty on rubber scrap and reduced turnover tax will improve cement firms’ profitability. Assuming these benefits are not passed on to the consumers then DG Khan Cement and Lucky Cement annual earnings would increase by 8-10 per cent. However, increase in gas cess has slight negative implication for cement plants.
