Cement manufacturers on shaky ground

Cement manufacturers will suffer from capital shortage if the government does not withdraw the advance income tax (AIT) and high customs duty levied on clinker imports, according to the Bangladesh Cement Manufacturers Association (BCMA).

Besides, after facing heavy losses due to the ongoing coronavirus pandemic, it will be difficult for the industry to recover with all the taxes, specifically import duty on raw materials, as it increases production costs.

Cement factories are completely dependent on imported raw materials but the import duty imposed on production resources is unreasonable, said various industry insiders.

Clinker, a fine powder used as a binder in many cement products, is bought from abroad at $42 per tonne but after paying customs duty, the price becomes $50 per tonne.

Meanwhile, the import duty on the binding agent stands at Tk 500 per tonne, which is not consistent with any other country and seems very unfair, said BCMA President Md Alamgir Kabir.

Kabir made these comments during a virtual press conference on the proposed budget for fiscal 2020-21 held yesterday. 

Considering the current situation, the BCMA demanded that the existing 3 per cent AIT charge on imports and 3 per cent income tax on sales of cement products be removed for the upcoming fiscal year.

"If the government does not consider our demands, cement companies will not be able to continue operations since they don't have the additional capital to cover AIT, income tax and increased import tax," Kabir said.

The usage of cement reached 200 kg per capita in 2019, while it was just 45 kg back in 2000, according to BCMA data.

Over the years, the industry has struggled with the rising cost of raw materials, un-adjustable advance income tax, unhealthy competition and increasing road and river transportation costs.

And although the sector started doing well early this year, the coronavirus outbreak in Bangladesh subsequently pushed the industry back into troubled waters.

To provide cement manufacturers with some relief under these difficult circumstances, the association has repeatedly asked the National Board of Revenue (NBR) to refund the Tk 750 crore that has been accumulated over the years as unadjusted AIT.

A taxpayer is entitled to refunds when their payment exceeds the tax payable. When making a refund is delayed for whatever reason, the government is charged an annual interest rate of 7.5 per cent of the total value until the refund is complete.

"However, the unfortunate part is that such refunds have not been made for years despite our numerous applications," Kabir said.

In recent times, the industry enjoyed double-digit growth rates, fuelled by the country's high GDP growth and increased private and public investment in construction.

To keep the upward trend going, the association called for import duties on clinker, a major production material, to be brought down from the existing Tk 500 per tonne to at least Tk 300 a tonne.

"Import duty should be restricted to 5 or 10 per cent at most. Therefore, entrepreneurs are demanding that the tax be set at 5 per cent or Tk 300 per tonne," the BCMA president said.

Although the country's annual demand for cement is just 35 million tonnes, the 35 cement factories active in Bangladesh have a total production capacity of 60 million tonnes.

Production capacity will increase by another 11 million tonnes in the next three years, according to Kabir.

Over the past 15 years, the cement industry has made tremendous contributions to the country's economic development as the excess cement supply is exported to neighbouring nations.

Manufacturers have invested about Tk 42,000 crore in their businesses and they deposit about Tk 5,000 crore to the government treasury as revenue each year.

To establish their factories, cement companies collectively borrowed at least Tk 30,000 crore from the banking sector as market assessments found that the demand for the key construction product would remain constant until 2041.

"However, it is unfortunate that the industry continues to suffer because of the novel coronavirus," Kabir said.

Besides, the government receives a huge amount of income tax from the country's cement companies while the industry creates thousands of opportunities for direct and indirect employment.

The current economic climate caused panic among cement manufacturers seeing that as much as 60 per cent of the country's construction projects have been put on hold.

This means that while production remains underutilised, factories have had to pay their workers' wages and other fixed operating costs.

With decreased demand leading to a lack of revenue, factory owners have had an increased burden of paying interest on their loans during this period as well.

Md Shahidullah, first vice-president of the BCMA and managing director of Metrocem Cement, also participated in the virtual press conference.