Heady climb for cement

Heady climb for cement
Published: 08 February 2006

The domestic Indian cement industry is currently passing through a consolidation phase. The industry has experienced a growth of eight per cent (CAGR) for the past one-and-a-half decades.

Currently, with 129 large plants and over 300 mini-cement plants, having a capacity of 165Mt and production of 134Mt, India ranks second in the world in cement production. But the cement industry is plagued with high excise duties.

Hence, it is asking for lower excise duty and paring down of other levies, which have a cumulative incidence of around 30 per cent of the sale price for a bag of cement currently.

At the same time, the industry is in favour of continuing with the specific duty regime, instead of the ad valorem duty rate structure being followed for most products.

The specific duty of Rs408 per tonne, levied on the cement industry currently, translates into an ad valorem excise duty rate of around 30 per cent of the selling price, according to industry estimates.

According to analysts, the cement industry has to contend with a host of central and state levies, including the central excise duty, sales tax levied by state governments, royalty and cess on limestone and coal and duties on power tariff.

These duties account for around 30% of the sale price of cement or around 70 per cent of the ex-factory price (excluding local transport and margins).

"Currently, the cement industry is paying around 14 different taxes to the Centre and various state governments, taking the retail price of cement to Rs 2,961 per tonne from the ex-factory price of Rs 1,175 per tonne," officials with the Cement Manufacturer’s Association of India (CMAI) said.

The duties, as a percentage of selling price of cement, are much lower in other countries – 20 per cent in Taiwan, around 12% in Germany, 10% in South Korea and below 5% in Japan and Malaysia - compared to the effective 30% levy in India, according to industry estimates.

But cement manufacturers are opposed to any shift from the existing specific duty regime to an ad valorem structure, which is expected to take care of inflation adjustments.

The industry has requested for continuing with the specific rates as there is no question of inflation adjustments since the cement prices are lower than what they were around five years ago, according to industry players.

Similarly, officials said the royalty charged on limestone - Rs 45 per tonne - is higher than that on a high-value mineral like iron ore, which is at Rs 16 per tonne.

Many countries charge nil or token levy/royalty on limestone mining. This makes domestic cement un-competitive in the export market.

The industry has demanded that the anomaly of royalty on cement grade limestone and iron ore be corrected by lowering the royalty on limestone and a 100% set-off be provided on exports.