KARACHI - The local cement industry players, who are facing a number of issues due to substantial surge in the cost of production caused by high taxes and energy prices, have demanded that the government take a fresh look at the nature and the level of taxation for the cement sector in the federal budget 2011-12. The All Pakistan Cement Manufacturers Association (APCMA) has submitted the budget proposals for the fiscal year 2011-12 to the Ministry of Finance recently. The APCMA has recommended that the federal excise duty levied by the government on the cement production be gradually reduced to zero per cent and till the excise duty is abolished, FBR should reinstate the system of supervised clearance at the cement factories. If it is not possible for Federal Board of Revenue (FBR) to post Excise Inspectors at the cement units, APCMA is willing to post audit firm representatives at the cement units at its own costs, the APCMA document said. Cement industry is subject to excise duty of Rs700 per ton along with 17 per cent General Sales Tax and 2.5 per cent Special Excise duty chargeable by the FBR on the cement production. These taxes come to around Rs87 per bag, which is the highest in the world. This incidence of high taxation encourages evasion also, the document revealed. The government has recently increased the Special Excise Duty (SED) to 2.5 per cent from 1 per cent through a Presidential Ordinance, which has caused hike in cement prices. According to APMCA, domestic cement consumption has dropped by 9 per cent from a peak of 22.57 million tons in 2007-08 to 20.53 million tons in 2008-2009. Therefore, the FBR has been advised to take immediate action on possible tax fudging by some cement manufactures with the help of tax officials. According APCMA deliberations, the collection of withholding tax on electricity bills should not be made from cement sector because most of the companies have to file for refunds of the tax. Cement industry is one of the major consumers of WAPDA and KESC, 5 per cent withholding tax along with 15 per cent tax surcharge severely affects the cash flow of already ailing industry. The duty drawback on cement exports to Afghanistan is allowed based on Afghan Custom document called Gumrak. Earlier, the Custom authorities were allowing the duty drawback based on photocopy of Gumrak but some time back they have started asking for the original Gumrak. Getting original Gumrak is impossible because the Afghanistan Custom authorities retain original copy, APMCA said. Many other documents related to Pakistani Custom authorities are produced in support of the claim. Recently the Custom authorities have again started accepting the copies of Gumrak. However, we request that this issue should be resolved once for all and duty drawback be allowed on photocopy of Gumrak and the pending cases should be cleared accordingly, it proposed. Regarding the issue of payment of inland freight subsidy claims for cement exporters, APCMA said the Economic Coordination Committee and Trade Development Authority had approved inland freight subsidy on export of cement by sea, accordingly the government issued a public notice dated March 26, 2010, allowing inland freight subsidy at 35 per cent till June 30, 2010. The cement industry, particularly those units located in the north zone exported cement on the assumption that the freight claims would be honoured. It is regretfully mentioned that after a lapse of eight months no such claim has been entertained. To date there are outstanding claims of Rs290m. It is recommended that these claims should be processed immediately, it said. APCMA document stated that cement production capacity in Pakistan has touched 41.235m tonnes per annum with an additional 2.50m tonnes on the anvil. 80 per cent of this capacity is situated in the North and 20pc in the South. During the first eight months of current financial year, domestic demand for cement was a mere 13.794m tonnes and exports amounted to 5.904m tonnes including Afghanistan, leaving surplus unutilised capacity of 8.000 million tonnes. During the last financial year, 14 cement units suffered loss before taxation aggregating to Rs10.226 billion while only 3 cement units, of which 2 are located near Karachi in close proximity to the sea port, earned profit of Rs4.840 billion. At the end of last fiscal, industry debts to financial institutions have raised to a massive Rs125 billion and cement units located in the North are particularly challenged owing to low demand and are unable to service their debts. Despite incurring heavy losses, cement prices continue to prevail at levels lower than cost of production, it added. According to the data released by APCMA, Cement dispatches dipped by 7.8 per cent to 16.017m tonnes in nine months (July-March) of the current fiscal year, compared to the dispatches of 17.383m tonnes recorded during the same period of the last fiscal year. Total dispatches for the month of March stood at 2.223m tonnes, showing a decline of 3.76pc as against 2.310m tonnes dispatches in March 2010.