Lahore - The cement prices will be increased from July by at least Rs35 to Rs550 per 50kg bag on average after the imposition of enhanced federal excise duty announced in the federal budget 2016-17. However, the retailers already increased the rates by Rs5-10 soon after the announcement of the federal budget. Hence, the cement was selling in the range of Rs490-515 per 50kg bag in North region including Lahore and Rs525-540 per 50 kg bag in South region including Karachi.

According to budget documents, the government has proposed to change the Federal Excise Duty (FED) mechanism from variable 5 percent of Marginal Retail Price (MRP) to a fixed Rs1/kg (Rs50 per bag). This change will not only increase existing FED of around Rs22 on 50kg bag of Rs515, but also increase sales tax in absolute terms as sales tax is being calculated on top of FED. Consequently, prices are likely to be increased by around Rs35 per bag (on a cement bag of Rs515) as opposed to Rs28 (Rs660 per ton).

The government has also increased customs duty on import of clinker from 2 percent to 11 percent, which will be positive for local industry and will discourage clinker imports.

On the other hand, the government has reduced import duty on coal from 6 percent to 5 percent, which will have a positive impact of Rs1/bag. Industry experts believe that the industry will face the net impact of Rs32/bag raise in cost. The government is expected to set consolidated Public Sector Development target of Rs1.67trn (up 11 percent) for FY17.

The industry stakeholders have strongly condemned the imposition of federal excise duty (FED) on cement in the budget for the Fiscal Year2016-17. They further said that the Federal Board of Revenue-FBR has already imposed regulatory duty (RD) on steel, adding that the imposition of FED on cement would further affect the construction industry.

With no IMF restrictions and decent fiscal space, this higher Govt. spending bodes well for the sector as this will result in increased construction activities. Further, the Govt. has allocated Rs188b for construction of roads, highways and bridges, which is an increase of about 18 percent as compared to last year. In order to promote housing, the Govt. has increased maximum deductable allowance from Rs1m to Rs2m on payment of profit on debt for construction of a new house or acquisition of house. This would help increase housing demand and would result in improved cement sales. The Govt. has also imposed final tax on builders/land developers on basis of per unit area, which is expected to generate Rs25b in new taxes. This proposal has already been vetted by local association of builders which will also impact negatively on booming construction activities in the country.