Cement industry in jeopardy for discriminatory tax policy

Cement manufacturers on Sunday said that in the current fiscal year, the production cost of cement has increased because of the tax policy of the government, but cement manufacturing companies cannot increase the price of cement very much because the local market is highly competitive. So the profit of these companies has decreased. 

Leaders of the Bangladesh Cement Manufacturers Association (BCMA) said this while exchanging views with reporters at Sonargaon Hotel on Sunday (December 1)

For 2019-20 fiscal year, the government imposed five percent Advance Tax (AT) on the import of raw material for the cement industry. It was set as minimum tax or final tax liability. That means, the companies must pay the tax. There will be no consideration of profit or loss.

Cement companies have to pay three percent tax at source on distribution of cement in local markets.

That means the companies have to pay a total of eight percent tax if one adds the five percent tax on distribution. 

The government earned Tk5,200 crore revenue from the cement sector in 2018-19. 

Now, with the new law in place, revenue will increase by Tk 2000 crore from the cement industry in the 2019-20 fiscal year. 

Previously the five percent advance tax was adjusted with the  profit or loss made by the company. 

The president of the Bangladesh Cement Manufacturers Association (BCMA), Mohammed Alamgir Kabir, said imposing 5 percent advance tax (AT) on the import of raw material for cement and 3 percent source tax on distribution is having an adverse effect on the entire cement industry.  The increase in tax has put the industry in jeopardy. 

He also said the government has imposed five percent tax on import of raw material for other production sectors/manufacturing industries.  But it has not set a minimum tax for them. 

All raw material for the cement industry has to be imported. But, the prices of this raw material, like clinker, gypsum, slag, limestone and fly-ash have been increasing for the last few years. 

He demanded the cancellation of the provision of minimum tax or final tax liability from the budget. 

Investment

At present, investment in the cement industry is approximately Tk 30,000 crore. Of that, Tk 18,000 to Tk20,000 crore has come from bank loans. The investment will be at risk if the government does not take immediate steps over minimum tax. Under the present circumstances, no company will be able to make a profit 

Sell deceases

The sale of cement has decreased in the first five months of the current fiscal year. Actually, the profit has decreased as the production cost has increased, BCMA President Alamgir Kabir said.

In last three years, the average growth of cement sales was 10 percent, but that deceased to 6 percent in the current fiscal year.  So, the businesses have faced a loss because the companies prepared their production plans for next year with an estimated 10 percent growth.  

Metrocem Cement Ltd's Managing Director Md Shahidullah said the government has been conducting nationwide drives against corruption and undisclosed income.  A lot of construction work has been halted because of this. This is one of key reasons for the decrease of cement sales. 

Fury over Economic Zones

Cement factories in Economic Zones are getting a waiver on paying advance tax and corporate tax. So they can sell their product at a lower price because their production cost is low. Fresh Cement and Aman Cement are getting the facilities because their factories are in Economic Zones. 

BCMA President M Alamgir Kabir demanded the same facilities for companies located outside the Economic Zones. If the government does not do so, the companies cannot survive in the competition. 

When asked why other companies are not attempting to shift to the economic zones, he replied that Lafarge Holcim has invested Tk 5000 crore in the cement sector, so how can they shift their industry to an economic zone from Sylhet. He demanded the same facilities for companies that are inside and outside the Economic Zones. 

Highly competitive markets

There are 37 local and foreign companies in the country's cement sector.  The production capability of the companies is 6.10 crore tonnes against the demand for 3.10 crore tonnes in the local market.  

Shah Cement controls 13 to 14 percent of the cement market while 11-12 percent is taken by Bashundhara Cement and 10 percent by Fresh Cement. 

Leaders of BCMA said intense competition among top companies and economic zone have made the cement market unstable.   

Regarding production capacity surpluses demands, Alamgir Kabir said a large volume of cement production reduces production cost. Besides, the government has been implementing several mega projects, so there will be a high demand for cement in the local market. 

Besides, the government has started to build concrete roads instead of making them with bitumen. The demand for cement will increase if the initiative extends nationwide.