PAKISTAN: A happy budget for the cement industry

Touted as one of the sectors to have taken home the positives from the budget, the overall cement industry has gotten the fairer share of the deal, indeed. Amongst the direct measures of the 2012-13 budget affecting the sector, federal excise duty on cement was the most discussed amongst analysts and professionals in the industry. Only a few days before the budget, expectations of a reduction of about Rs200-250 per ton were rampant in the industry. The APCMA had also proposed a Rs200 per ton reduction for the upcoming budget. However, the Finance Ministrys ultimate reduction of Rs100 per ton of FED was below market anticipations. After this measure, FED on cement stands at Rs400 per ton - Rs20 per bag. There were expectations that this levy will be phased out by the FY14 budget. But with a less-than-expected reduction in FED for FY13, the phasing out may take longer than anticipated. Further, the lower reduction in FED also put question marks on whether the benefit will be passed on to consumers or absorbed by manufacturers completely. Reduction in custom duty on rubber scrap and shredded tyres was another welcome development for the sector. With the duty brought down from 20 percent to 10 percent, this is a positive measure for cement manufacturers that use shredded rubber scrap as an alternate fuel. PSDP expenditures are another area on which cement players have a keen eye. At Rs873 billion, the increase in the size of PSDP rounds off to 19 percent more than what was expended in the previous years budget. Theres also a strong likelihood of these estimates to be met in actuality since FY13 will be an election year warranting steeper development efforts by the current government to lure voters. That the previous years PSDP outlay marginally exceeded its budgetary target also sets up a good precedence for the coming fiscal year. Other measures included in budget that will have a positive bearing for the sector is the reduction in minimum turnover tax from one percent to 0.5 percent - especially beneficial for loss-making cement manufacturers - and the reduction in withholding tax on exports from one percent to 0.5 percent. Increase in the gas infrastructural development cess for industries from Rs13 per mmbtu to Rs100 per mmbtu will impact the sector negatively, though the impact will be small. Overall, the post-budget scenario appears quite positive for the cement sector, even though the measures taken were not up to expectations. To what extent would the reduction in taxes benefit consumers remain to be seen, but cement manufacturers must be quite pleased.