The Bangladesh cement industry, already fighting a price war amid overcapacity, soaring dollar, energy disruptions, higher transportation costs and letter of credit issues, now has a new problem to deal with – the newly added 30% supplementary duty on limestone imports and increased advance income tax.
"Only proper government steps will solve these issues in the cement sector. Otherwise, it may have an adverse effect on the price of cement, which may hamper the infrastructural development of the country," the Bangladesh Cement Manufacturers Association (BCMA) leaders said at a press conference in the capital on Tuesday.
BCMA President Md Alamgir Kabir said due to a manufacturing capacity that is almost double the existing demand, there is a fierce rivalry in the market and cement has been sold at a lowest minimal price in order to survive in the market.
Cement makers, already going through financial hardship in the recent years, are in even deeper trouble as their costs have soared by more than 20% this year and companies did not pass it all to the customers, despite the fact that the industry's gross profit margin shrunk to an unprecedented low a year ago and many have been posting net losses in the recent quarters.
Gross margin is how much a company makes at factory level, while administrative, tax and other costs later only reduce the ultimate profits.
Alamgir Kabir, also the vice chairman of the country's cement export pioneer Crown Cement Plc, said even if a company makes no money, the government is taking unadjustable advance taxes, advance income taxes while it imports raw materials, sells cement.
Moreover, a 30% supplementary duty on imports of a key raw material – limestone that makes up to 25% of the industry's costs of goods sold – was slapped last month alongside raising the advance income tax rate on limestone imports to 5% from 3%.
The two alone increased the total taxes and duties on limestone to 67% of the import value from 27%, the BCMA president said.
Supplementary duty is for luxury goods, and should not be there for the key raw materials of a crucial product like cement, he added.
While discussing the adverse exchange rate and added finance costs he said, the letter of credits (LC) opened for raw material imports earlier this year at an exchange rate of Tk86 per dollar had to be settled at over Tk100 or even over Tk105 per dollar.
Nowadays, companies are struggling to avail banking services to open an LC and the exchange rate, LC issues increased companies' finance costs.
In such a challenging situation, the customs house unfairly changed the HS code for limestone and added to the tax and duty burden.
Besides, all the taxes and duties are being imposed on tariff values inflated by 10-35%, depending on items—clinker, slag, limestone, fly ash and gypsum.
"Why the rates based on which the duties and taxes are assessed are set higher than our import costs are beyond our understanding," said the BCMA president.
While electricity shortage is disrupting cement production nowadays, companies are not getting the alternative – natural gas for captive power generation and the government should ensure the energy supply, he said.
Cement companies are paying additional amounts this year for local transportation due to the fuel price hike.
Kabir reiterated his call for the prompt removal of all extra duties on limestone during the press conference. Additionally, he demanded that AIT at imports and sales level be slashed to a maximum of 0.5% and the tax to be excluded from the final tax obligation.
BCMA Vice President and the Managing Director (MD) of Metrocem Cement Md Shahidullah, member Mohammed Amirul Haque, the MD of Premier Cement spoke on the occasion.
The Cement Industry
Local cement industry having around Tk40,000 crore in aggregated investments made Bangladesh a cement exporter alongside catering to the entire fast growing domestic market.
Over 35 large and medium cement mills, including some owned by multinational companies, are producing nearly 4 crore tonnes of cement per annum.
As the country lags most of the regional peers in per capita cement consumption and the economy is only growing over decades, industry players significantly built their production capacity.
Having had a sharp pandemic-recovery last year, cement consumption slightly slowed down this year.
A single digit price hike for cement in the middle of this year, and much bigger price hikes over the last two years for steel increased construction costs sharply while companies and families are struggling to cope up with the high inflation.