India budget countdown: cement makers may get excise duty relief

India budget countdown: cement makers may get excise duty relief
Published: 11 February 2008

The Indian budget may bring cement manufacturers much awaited relief in the form of a 35% abatement on excise duty and waiver of import duty on coal and petcoke.

If the cement makers were to pass on the benefit accrued on account of lower taxation, cement prices can come down by INR10 per 50kg bag on average.

In its Budget proposal being finalised, the department of industrial policy and promotion (DIPP), the nodal government department engaged in policy making on cement, has sought abatement of 35% on excise duty being paid by cement makers.

If the finance ministry agrees to the proposal, which a government official says is likely, it may bring in some relief to manufacturers as well as consumers. However, it is common for other ministries to claim that the finance ministry is agreeable to their proposals. The truth of such claims is impossible to ascertain till February 28.

What this implies is that for a product with an MRP of
INR100 and abatement of 35%, a manufacturer has to pay excise duty only on INR65. The industry usually gets abatement when the excise duty is linked to the maximum retail price. Industry body Ficci had demanded a 55% abatement on grey cement, saying without abatement, the duty “results in a tax on trade margins and a tax on tax”.

DIPP has also sought to rationalise the duty for cement at 12% ad valorem. At present, there are three duty slabs: a specific excise duty of
INR350/t for cement priced up to INR190 per 50-kg bag and a duty of INR 600 for cement priced above Rs 250 and an ad valorem duty of 12% for the commodity priced between INR190 and INR250.

The differential duty structure was introduced in the last Budget. Cement makers earlier paid a fixed duty of Rs 400/t. “The current duty structure is very complicated and doesn’t serve any purpose because all cement sold through the past year were priced between
INR190 and INR250,” says a government official.

DIPP has also proposed removal of 5% duty on the import of coal and pet coke, key input in the making of cement. This is likely to bring down cost of production.

The government, however, at present has no intention of reimposing countervailing duty or special additional duty on import of cement, a strong demand of cement makers. The government had removed all import duties last year to facilitate import and cool off domestic prices. The all India average price of cement at present is
INR237 per 50kg bag.

“The abatement will bring back pricing power to the industry, which has been under pressure from government and user industry. Since the domestic demand is strong, it will give cement makers a window to improve realisation. And if they decide to pass on the benefits to consumers, they can reduce the gap with import prices, making themselves more competitive against foreign manufacturers and end up having a positive impact on inflation,” says Rupesh Sankhe, a cement analyst with broking firm ICICI Direct.