Cement makers demand rational tax structure

With no room to hike prices as demand slips and fresh capacities coming up, cement manufacturers have urged the government to rationalise the tax structure for the industry in order to sustain the 10 per cent growth.

Despite being an essential infrastructure input, taxes and other government levies constitute 60 per cent of the ex-factory price of cement, making the building material the highest tax contributor among the commodities required for infrastructure. The industry pays around Rs 9,000 crore as excise annually to the government.

Plus, the value-added tax on cement is as high as 12.5 per cent, while that on steel is 4 per cent. Similarly, royalty paid by steel makers on iron ore (a high value product) is Rs 16 a tonne, whereas the industry ends up paying Rs 45 a tonne on limestone (a low value product).

In its pre-Budget memorandum (of which a copy is available with Business Standard) to the finance ministry, the industry said, “The government should take immediate measures to do away with such disparity in rates, to encourage investments in housing and infrastructure sectors, the main consumers of cement.” The industry, the world’s second largest after China, also wants simplification of the existing excise duty structure, which cement makers term as “very complicated”.

Presently, there are two slabs of excise — Rs 360 a tonne when MRP is Rs 190 or below for a 50 kg bag of cement and 12.36 per cent when MRP exceeds Rs 190. Ever since coal linkages from the government was gradually reduced, the industry has been supplied with only 14.05 million tonnes of coal against its consumption of 27 million tonnes in 2007-08. The rest of the requirements was met through imports, e-auction and open market.

The industry has asked the government to abolish the 5 per cent customs duty on coal and pet coke, arguing that the raw materials must not be taxed when customs duty is not levied on the finished product (cement). They have also suggested that the 10 per cent import duty on gypsum, another raw material for making cement, be removed.

The industry, with a combined capacity of 205.16 million tonnes, has seen a change in the product mix with blended cement taking the front seat. For some companies, the ratio of blended cement has touched as high as 90 per cent.

In blended cement, by-products such as fly ash and slag are used in manufacturing. Industry consumes 25 per cent of the 130 million tonnes of fly ash generated in the country.

Fly ash from thermal power plants are supposed to be given to the consumers free of cost as it is an environmentally hazardous waste product. However, the thermal power companies have resorted to charging for supplying fly ash.

“The pricing supply of fly ash to cement plants should be withheld and clear-cut and unambiguous instructions be given to thermal power plants that fly ash be supplied to cement manufacturers free of all cost,” said the letter from the industry to the government.