Tax cuts for cement industry nominal, won’t lower prices
Although the government said that it would reduce the taxes levied on the import of raw materials used to make cement, this initiative will not have a satisfactory impact as prices would remain the same at the consumer level, according to market players.
While announcing the proposed national budget for fiscal 2021-22 on Thursday, Finance Minister AHM Mustafa Kamal said the advance income tax on raw material imports for cement production would be reduced from 3 to 2 per cent.
Kamal also proposed that the tax deducted at source on the supply of cement be cut by 1 percentage point to 2 per cent, and to provide tax incentives for the industry to ensure easy and cost effective infrastructure development in the country.
"But this nominal reduction will not benefit consumers as raw material prices recently increased in the international market," said Mohammed Amirul Haque, managing director of Premier Cement.
Besides, the shipping costs have risen significantly over the past three to four months, he added.
According to Haque, the current shipping cost of one tonne of clinker is around $63 while it was $56 just a few weeks ago.
"This is why the price of cement has increased in the domestic market since mid-March," Haque said.
Similarly, the rising trend in international shipping costs began last November.
Just one-and-a-half months ago, it would cost about $20 to transport one tonne of clinker on a mother vessel from Indonesia, Vietnam, or even the Middle East, to Bangladesh.
"So, reducing advance income tax and source tax by 1 percentage point each will not bring an adequate benefit for consumers," Haque added.
Md Shahidullah, managing director of Metrocem Cement and first vice-president of the Bangladesh Cement Manufacturers Association (BCMA), echoed the same.
"If the government reduced the import taxes to Tk 200 from Tk 500 per tonne of clinker, then consumers would be benefitted," he said.
The price of each 50-kilogramme (kg) bag of cement recently rose by around 12 per cent, or Tk 50, to hit roughly Tk 450 -- a development which will surely push up construction costs, be it for the government's development projects or private projects.
Against this backdrop, cement makers have demanded the complete withdrawal of the inconsistent advance income tax imposed on raw material imports as the impact of the tax concession given to the cement sector in the proposed budget is very nominal.
"We will meet with officials from the National Board of Revenue to discuss our demands, including the complete withdrawal of tax paid at source on the supply stage," Shahidullah added.
As far as the market players are concerned, the taxes levied on raw material imports has always been inconsistent and therefore, is by no means desirable.
So, if not a complete withdrawal, then the taxes should at least be made compatible.
The BCMA also demanded that the rate of withholding tax on cement supply, which has been proposed to be reduced from 3 per cent to 2 per cent, be withdrawn in the final budget.
"The proposed tax cuts are nothing but unreasonable coercion for an industry since we cannot say just how much profit it could make," said Md Alamgir Kabir, president of the BCMA.
"It depends on the country's economy, market system, demand and above all, competition," he added.
The BCMA chief went on to say that profit and loss are determined after an audit by a government-designated body, regardless of whether it is a listed company or not.
"So, if the government thinks that advance income tax should be paid, we should not have any objection," he said.
"But the income tax imposed should not ultimately be a liability in any way," Kabir added.
At present, there are about 35 local and foreign cement companies in Bangladesh.
The annual demand for the key construction material is about four crore tonnes against a production capacity of 8.4 crore tonnes. Around Tk 42,000 crore has been invested in the industry till date.
Moreover, millions of construction workers and officials are both directly and indirectly employed by the industry, which deposits roughly Tk 5,000 crore to the state coffer through customs and taxes.
With a surplus in supply, locally produced cement has been exported to many destinations for more than 15 years now.
The per capita consumption of cement in the country currently stands at 210 kgs while it is a whopping 1,700 kgs in China, 690 kgs in Malaysia, 620 kgs in Thailand, 517 kgs in Vietnam, 412 kgs in Sri Lanka, and 305 kgs in neighbouring India.