Cement sector in trouble

The cement sector has fallen into deep trouble for a “non-adjustable” clause incorporated on a 5 percent advance income tax (AIT) and 3 percent source tax, say Bangladesh Cement Manufacturers Association (BCMA). 

The AIT is basically tax calculated on income but paid in advance instead of at a year’s end.

Cement manufacturers previously could adjust the figure later on based on the final tally of their income. They pay the AIT during import of raw materials and source tax during local sales of the product.

The National Board of Revenue has proposed making the two forms of taxes non-adjustable from the current fiscal year considering those to be the minimum tax that the makers have to pay.

“The sum…has turned into a reason for losses for the cement industry,’’ said BCMA President Md Alamgir Kabir while exchanging views with a group of journalists at Pan Pacific Sonargaon Dhaka yesterday.

The manufacturers also pay a 5 percent customs duty and 15 percent value added tax.

According to the BCMA, the industry sold 26.2 million tonnes of cement from January to October in 2018, which was 15.69 percent growth year-on-year.

In comparison, there has been a 6.38 percent drop this year with 27.87 million tonnes being sold.

Kabir, also vice chairman of Crown Cement, said another troubling issue for the manufacturers was an unhealthy competition arising from overproduction against a backdrop of investments amounting to over Tk 30,000 crore. 

There are 37 active cement factories in Bangladesh with a combined production capacity of 58 million tonnes per year against a demand for 33 million tonnes, meaning the capacity exceeds the demand by about 43 percent.

According to him, the sector’s annual sales are worth around $3 billion, or Tk 25,500 crore. Of the consumption, individuals account for 25 percent, real estate companies and developers 30 percent and the government 45 percent.

He said if the manufacturers want to survive, they would have to make a 40 percent gross profit and at least a 20 percent net profit, which to him was impossible to achieve.

Gross profit is revenue minus cost of goods sold. Net profit is revenue minus all expenses, including the cost of goods.

Kabir demanded that the government waive the AIT, otherwise a number of small factories would be forced to shut down.

“It will take at least four years to get rid of the unhealthy competition as by then the demand will increase,” he said, adding that per capita cement consumption would stand at 250 kg in 2020.

He also spoke of two factories, without mentioning their names, which would be able to avail a huge competitive advantage in the local market for being exempted from paying the AIT and source tax solely for being situated inside an economic zone.

Md Shahidullah, managing director of Metrocem Cement, and Bellal Hussain Molla, executive director of the BCMA, were present.