VAT imperils Pakistani cement industry

Heavy taxation reduces industry competitiveness.

{reg}The Pakistani cement industry is facing bleak prospects with the imposition of value-added tax (VAT), on the already heavily taxed industry. This is the latest of a series of setbacks for the industry which includes a lower budget for the Public Sector Development Programme (PSDP) targets.

The 15 percent VAT on cement sales replaces a 16 percent general sales tax. A one percent reduction in VAT would have no impact as cement margins are already declining due to excess supply in the country. It is expected that the VAT would lead to a slowdown in sales as a result of price increases.

The federal excise duty on cement is likely to remain as the cash strapped government tries to maximize revenue sources. The industry however enjoys an in-land freight subsidy of 35 percent to cement manufacturers to enhance export sales and this is likely to continue next year.

However the industry is expected to expand by 11 percent due to higher construction activities by the private sector and recovery in economic activities. Afghanistan is most likely to be a permanent market due to lack of availability of limestone. The industry however is hampered by the high rate of indirect taxation which reduces its competitiveness to other countries. {reg}