Pakistan: hopes of FY15-16 budget boost

The Pakistan cement industry has submitted a number of proposals to the government ahead of Budget FY15-16. 

The All Pakistan Cement Manufacturers’ Association has proposed a review of the Federal Excise Duty (FED), Sales Tax, import duty on coal, duties on waste and scrap tyres, duties on Iranian cement  and an increase in the allocation of funds under the government's Public Sector Development Programme (PSDP).

The industry body argues that the rationalisation of taxes should help cement prices in Pakistan and accelerate investment in the real estate sector.

FED
The cement industry is currently subject to Federal Excise Duty (FED) at a rate of five per cent of the retail price, and General Sales Tax at 17 per cent of maximum retail price. These taxes amount to around PKR95/bag. Accordingly, the industry has requested the government reduce the FED in a stepwise approach to zero, claiming that by doing so it “will enhance cement consumption at reduced price.”

Sales Tax
The APCMA is also calling for the Sales Tax rate to be reduced from 17 per cent to 12.5 per cent, and to be further gradually slashed to 10 per cent over the next three years for registered entitites. Such a move, it argues, will encourage the registration of unregistered tax payers to avail the benefits of the input tax adjustment.

Import on coal duty
Through the Finance Act 2014, the government imposed a one per cent import duty on coal from nil previously. The APCMA is now calling for the pre-Finance Act duty structure to be reinstated.

Duties on waste and scrap tyres
Also through the Finance Act 2014, an import duty of 10 per cent and a tariff of 20 per cent were imposed on imported waste and scrap tyres. The APCMA has proposed that this fuel should be subject to nil
import duty to bring it on a par with other fuels which enjoy no customs duty.

Duty on Iranian cement
The APCMA has suggested a 25 per cent customs duty on Iranian cement imports (currently at one per cent). The association has claimed that around 34,000t of Iranian cement were imported in April 2015 and another 20,000t up to 15 May 2015.

PSDP allocation
The National Economic Council (NEC), chaired by Prime Minister Muhammad Nawaz Sharif, on 1 June approved a GDP growth target of 5.5 per cent for FY15-16. It also approved a PKR1.514trn development outlay, including PKR700bn under the federal PSDP and PKR814bn under the provincial Annual
Development Program (ADP).

Al Habib Capital Markets expects the impact of forthcoming Budget FY15-16, to be announced by Finance Minister Ishaq Dar on Friday, would be neutral-to-positive for the Pakistan cement industry.

The research house has said that given the current fiscal challenges facing the economy, the chances of the government slashing import duty on waste and scrap tyres under Budget FY15-16 are low.

With the average PSDP utilisation having already crossed 70 per cent mark during 10MFY15, the research house expects domestic cement demand to remain strong during FY16 on the back of higher PSDP allocation.

The local cement industry is subject to duties even on raw materials, spare parts and packaging materials thus resulting in higher production cost. Al Habib argue it would therefore be fair to levy higher customs duty on Iranian cement to bring its cost in line with local cement producers and simultaneously increase customs revenue.