Cement prices to rise due to FED in new budget

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LAHORE: As the government has increased the Federal Excise Duty (FED) on cement by Rs 25, to Rs100 per 50 kg bag in the budget 2019-20, the prices of cement bags are going to rise further from July.

Industry experts said that construction material is also likely to get costlier after July when the budgetary measures will start getting implemented and new duties will be imposed. They said that the budget imposed 17 percent sales tax on the marble industry, besides increasing federal excise duty on cement from Rs1.5 per kg to Rs2 per kg, leading to an overall increase of at least Rs25 per 50 kg bag of cement, in addition to the hike in fuel prices and higher customs duty on the import of coal.

They said that times will get tougher due to new taxes and duties in the budget. They said another increase in FED and changes, particularly the duty on coal, would further shrink demand. They said that the government in previous budget had also exercised changes in the Federal Excise Duty (FED) mechanism from variable 5 percent of Marginal Retail Price (MRP) to a fixed Rs1.5/kg (Rs50 per bag).

This change not only increased existing FED on 50 kg bag but also increased sales tax in absolute terms as sales tax was being calculated on top of FED earlier. Consequently, prices were increased by around Rs35-55 per bag due to previous budgets. In past budgets, the government had also increased customs duty on import of clinker from 2 percent to 11 percent, which was positive for local industry and discouraged clinker imports.

According to cement industry experts, the revenue shortfall gap of the FBR was planned to bridge through imposition of the new taxes of over Rs125 billion per annum though the cement companies have already been contributing more than 65 percent in annual GST collection in FY 2017-18.

They said that the GST gap is not very significant for last five years by the cement companies at compliance rate of almost 75 percent. Moreover the same companies are providing income tax of over Rs 11.8 billion. They said that the FBR has now taken steps in the budget 2019-20 to materialize the target of revenue collection when it has to collect Rs 5,550 billion in the financial year under the possible IMF program.

The industry stakeholders have strongly condemned the imposition of federal excise duty (FED) on cement in the budget for the Fiscal Year 2019-20. They further said that the Federal Board of Revenue has already imposed regulatory duty (RD) on steel, adding that the imposition of enhanced FED on cement would further affect the construction industry.

They said that a reduction in the Public Sector Development Program (PSDP) has already forced cement producers in the northern region to reduce prices by around Rs150 per bag. Earlier, cement prices in the north crossed Rs 600 per bag and then began falling when the new government introduced austerity measures and slashed the development budget.

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