New Delhi: Indian cement industry responded positively to liberalization with capacity and production growing from 29 million tonnes and 21 million tonnes at the time of partial decontrol (1981-82) to 178 million tonnes and 162 million tonnes at the end of 2006-07.
In the last 25 years it sustained a compound average growth rate (CAGR) of 8.5%. Adopting state-of-the-art technology and meeting international standards, Indian cement industry today ranks second in the world.
Reducing taxation on cement will bring down cost of construction and will help create a level playing field in the global market
Cement and clinker exports touched 10 million tonne mark in 2004-05 though in 2006-07 they had declined to 8.96 million tonnes, owing to growth in domestic demand.
Working Group on cement industry for XI Plan estimated that at the end of XI Plan demand for cement would be 269 million tonne for which capacity needed would be around 300 million tonnes. Cement industry is in the process of adding a 100 million tonne capacity in next few years to meet demand during XI Plan.
* Taxes and levies
Cement remains the highest taxed essential infrastructure input in India. Various Government levies and taxes, taken together, constitute 60% or more of the ex-factory price.
These levies are very high when compared with 17 countries in the Asia Pacific Region where the total average tax on cement is 11.4%, highest levy of 20% being in Sri Lanka.
Central levies and excise duty on cement should be reduced, to make it more affordable, specially for housing and infrastructure projects and to provide a level playing field with international competitors.
* Excise duty on cement
A three-tier system of excise duty on cement should be announced. For cement where MRP is > Rs190 and < Rs250 per bag, the government introduced an excise duty of 12%. For cement where MRP is < Rs190 specific rate of excise duty of Rs350 per tonne and where MRP is over Rs250 per bag, a specific rate of excise duty of Rs600 has been imposed. Whenever excise duty is levied on the basis of MRP, abatement is given. Absence of abatement would result in a tax on Trade Margins and a Tax on Tax.
This can be corrected by providing abatement on excise duty levied on MRP. Such abatement is provided to all products where levy is linked to MRP. The NCAER report of 2005 suggested an abatement of 55% for grey cement. Even white cement receives an abatement of 35% on MRP.
Abatement of 55% as per NCAER report of 2005, must be given on excise duty.
* Sales tax/VAT
All construction projects including infrastructure, require two main materials , namely cement and steel. VAT on cement and clinker has been kept at 12.5% while it is 4% on steel.
Current rate of VAT on cement and clinker, which is 12.5% should be brought in line with similar important construction material like steel at 4%. This would certainly help in reducing cement prices by Rs20/- per bag.
* Customs duty on coal and pet coke
Coal is the main fuel for manufacture of cement. There is always a shortfall of coal supplied against the quantity required. During the year 2006-07, industry needed 25 million tonnes of coal. But it received 14.43 million tonnes of coal against linkage of 15.48 million tonnes through FSAs signed between coal companies and cement companies. For the rest of the requirement, the industry had to depend upon the open market, imported coal and alternative fuels like pet coke. There is an import duty of 5% on coal and pet coke whereas on final product cement on import duty is levied.
To sustain cement production to meet growing demand, the industry requests that customs duty on coal and pet coke be abolished. This would correct the inverted pyramid structure of duties existing in cement imports.
* Duty on cement import
In view of the imbalance in demand-supply situation of cement and consequent cement prices, the government chose to permit easy imports. Customs duty was reduced to zero while excise duty on cement was increased by 50%. Further, CVD on import of cement was withdrawn. These measures brought distortion in the level-playing field between domestic production and imported cement.
Growth in cement demand projected by Planning Commission can be met only if domestic capacity and production increase to the required level. Domestic cement players have always responded in the past by creating capacity ahead of growth in demand. This led to low prices of cement due to intense market competition. Till 2005, there were hardly any profit margins, leading to many companies being pushed to BIFR or takeovers. With spurt in demand in 2005-06, capacity utilization went upto 94 - 96%, in some months even 100%. With further growth in demand there is need for creating additional capacities. Domestic players have ploughed in their profits, which they earned in the last quarter of 2005-06 in creating fresh capacities.
The cement industry is currently in the process of implementing capacity additions through expansions/greenfield projects to the extent of 100 million tonnes in the next three to four years to cope with growing cement demand. If realizations are affected, investments in new capacity creation would be delayed or even dropped which is not a healthy situation for India’s growing economy.
CVD should be reimposed to the extent of excise duty on cement imports to provide a level playing field for manufacturers/ exporters.
* Supply of fly ash
Cement industry is one of the major consumers of fly ash which has been posing problems of disposal for the power sector. The industry consumes around 25% of fly ash which was initially given free of charge. But, for last couple of years, power sector has been charging for supply of fly ash under pretext of certain development charges. This is against the concept of ‘Polluter Pays’ adopted in the draft Environmental Policy.
Fly ash should be supplied to cement manufacturers at no cost, as the industry has incurred substantial investments not only for fly ash collection but also on additional equipment for handling, storage, conveying and grinding fly ash with cement.
Cement industry has also been facing problems due to refusal/non-availability of Cenvat Credit on various items, service tax etc. Due attention must be given to a sector that provides basic material for developing the nation’s infrastructure (construction of roads, houses for millions, hydro and power projects, airports/ports, canal lining, renovation of water bodies and projects under Bharat Nirman Yojana and other projects of community development).
* Concessional customs duty on project imports: Reduce custom duty rate for project import to nil and facilitate required capital expenditure on infrastructure growth
* Reduce import duty on waste tyre: DGFT to be permitted to import tyre chips by end users for use as alternative fuel in cement plants, at the same import duty as coal, since it is intended for the same purpose.
* Exemp excise duty for goods supplied to SEZ: Suitable exemption notification be issued to develop SEZs that facilitate export activity
*Excise invoice – exemption from pre-authentication: General exemption circular be issued to allow exemption for pre-authentication of invoice in respect of assesses who are paying duty of more than Rs5 crore from PLA in a given FY
*100% cenvat credit on capital goods in year of receipt
* Service tax
- Tariff rate to be fixed: Instead of sole rate of 12.36% for all services, tariff should be fixed on some rational basis, according to feasibility in different services
- Separate act to be codified for provisions governing Service Tax: Presently, provisions are being governed by Finance Act, 1994. However, separate act should be legislated for this levy and for other taxes/levies like Income Tax, Customs, Excise etc
- Goods and services to be made vatable: It should be considered that manufacturer whose final product attracts Central Excise levy, Central levy and Cenvat credit, should be allowed credit of service tax against payment of excise duty, as both levies are indirect taxes. This will ensure avoidance of cascading effect of indirect taxes
* Withdraw FBT from sales promotion expenditure since growth of any industry relies on increase in sales for which sales promotion is essential