The cement industry last week submitted its pre-budget memorandum 2011-12 to the finance ministry, where it requested the government to bring the value-added tax (VAT) on cement on a par with other building materials like steel in the Budget and scrap import duty on coal, pet coke, gypsum and other fuels.
While steel attracts 4 % VAT, for cement it is as high as 12.5%. Industry players argue that since both the materials are used for construction, cement should be given a level playing field to that of steel.
Though cement is the most essential infrastructure input, the tax on cement is the highest among the items required for building infrastructure. The total government levies and taxes on cement constitute 60% or more of the ex-factory price, Cement Manufactures Association (CMA) said in a pre-budget memorandum to the finance minister Pranab Mukherjee.
Echoing the views, HM Bangur, CMD of Shree Cement told FE, Levies and taxes on cement in India are far higher than most of the other countries in the Asia-Pacific Region where the average tax is just 11.4 %, with the highest levy of 20 % being in Sri Lanka.
Concerned with high cost of manufacturing, the industry said, Currently only 50 55% of the coal requirement of the cement industry is supplied through linkage. The balance requirement of fuel has to be procured from open market/e-auction, import of coal and use of alternative fuel pet coke, all at considerably higher cost than linked coal thus adding to the cost of manufacturing of cement, CMA said.
The industry also expects to be granted "declared goods" status like steel, which would enable the sector to reduce expenditure on taxes.
The 280 million tonnes Indian cement industry has started to witness demand-supply mismatch as cement capacities has started exceeding cement consumption. The widening demand-supply gap is expected to affect the capacity utilisation levels of the cement companies. The rating agency Fitch had said it expects further pricing pressure in the wake of lower capacity utilisation, and notes that regional variations will continue to play a significant role.
Revenues of the cement companies were weak during June-September 2010 on account of lower cement prices, and are expected to remain subdued with price declines offsetting the impact of growing volumes. Furthermore, raw material (mainly coal) and freight costs have also been on a rising trend, further affecting profitability of the cement companies.