Construction to become costlier as impact of higher FED on cement seen at Rs44bn

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KARACHI: The budgetary measures announced by the finance minister for next fiscal year will jack up cement price by Rs18 per 50-kilogram bag and steel bar (Sarya) by Rs2,000-3,000 per tonne pushing up the cost of construction.

With the proposed 25 per cent increase in the Federal Excise Duty (FED) to Rs1.25 per kg (Rs1,250 per tonne) along with consequential enhancement due to imposition of sales tax on enhanced value and change in the rate of withholding tax on retailers from 0.50pc to one per cent, the overall impact on the price of cement bag will be approximately Rs18 per 50kg bag, a cement industry player, who didn’t want to go on record, told Dawn on Saturday.

He said with increase in the FED, the government would raise around Rs44 billion in 2017-18 as compared to Rs35bn in the outgoing fiscal year. The share of cement in overall construction cost is estimated at 15-20pc.

Similarly, a steel bar maker, who requested anonymity, estimated a possible increase in Sarya prices by Rs2,000-3,000 per tonne.

“The market may see enhanced steel bar prices from the next week. The share of steel bar in overall construction cost hovers between 15-20pc.”

A steel bar dealer said the Sarya Market is already abuzz with price hike from the next week.

Finance Minister Ishaq Dar in his budget speech on Friday said to rationalise the rate of sales tax on steel sector, the existing rate electricity of Rs9 per kWh is being enhanced to Rs10.5 and corresponding increase shall be made in ship-breaking and other allied industry.

The cement industry official said due to a recent price war among the manufacturers it would be very difficult to pass on the impact to the end consumers at least in the near-term as the cement demand in the upcoming months would stay subdued due to Ramazan and monsoon impact.

He said the duty on coal has also been enhanced by two per cent which would have a cost impact of around Rs25 per tonne which may further impact the already receding margins of the sector.

He showed his apprehension on abolishment of fixed tax on builders and developers which would have a serious impact on the demand for cement from the private sector. He said they had already shown stiff resentment on this matter which could lead to an impasse in the construction activities.

On a question of record PSDP allocation, he said it would have a positive impact on demand equation provided that the government spends the entire amount in a given period of time.

However, according to sources, historically the government’s PSDP size is merely a paper number and ground realities are altogether different.

In his view, the amendment made in compulsory distribution of dividend regime would also have a negative impact on the investment climate as most of the cement companies are in the expansion mode and they cannot distribute 40pc of their profit.

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