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News Cement and taxes

Cement and taxes

Written by David Perilli, Global Cement 28 February 2018
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The old saying goes that nothing is certain except for death and taxes. But maybe that should be cement and taxes. Paying your taxes is something most people and companies just get on with, perhaps with some grumbling or perhaps not, but certainly with little press. So two news stories popping up in the same week about cement plants with tax issues is out of the ordinary.

The first concerned Lucky Cement’s battle in Pakistan to keep one of its plants open following accusations of underpaying its taxes. The local tax office tried to shut the Pezu plant down for not paying its property tax. The cement producer hit back with a restraining order from the provincial high court. The second detailed efforts by the Ethiopian authorities efforts to claw back US$10m from a local cement producer accused of deliberately understating its profits. In both cases it’s hard to tell if there is an obvious right or wrong party. Yet if these kinds of stories are hitting the local press headlines then either something has gone wrong or both parties are digging in for a fight.

Looking over a longer time frame two major stories about tax have been doing the rounds over the last year in the industry news. India’s Goods and Services Tax (GST) is a classic example of how cement producers sometimes have to deal with changes to existing regulations. It received another outing this week in the form of the credit agency ICRA’s latest forecast. It explained how the introduction of the new tax, a consolidation of other existing indirect taxes, had slowed production in the second quarter of the Indian financial year in 2017 - 2018.

The other example from a large cement producing country was US President Donald Trump’s cut to federal corporate tax in December 2017. The tax cut was expected to particularly benefit companies that produce materials, like building materials manufacturers. It prompted HeidelbergCement to say in early January 2018 that it expected to see a boost to its profits in 2019. Warren Buffet, the chairman of Berkshire Hathaway and owner of insulation producer Johns Manville amongst other companies, put it bluntly when he said in his 2017 annual report that nearly half the gain of his company’s net worth came from the changes to the US tax system.

Multinational companies, including some cement producers, face issues when dealing with different rules and regulations between the various countries that they operate in. However, sometimes unfairly, sometimes not, large companies also hold a reputation for trying to avoid paying tax.

In this context it’s interesting to look at how LafargeHolcim says it approaches the issue. The company published its tax principles in 2016 where it talks about being responsible and that it, “…accepts tax as a necessary and required contribution to society.” It then talks about the necessity of transparency and good relationships with tax authorities. The same year it declared a total tax bill of Euro726m versus total sales revenue of Euro23bn. By contrast Cemex UK in its tax strategy talks about how it follows the US Sarbanes Oxley Act 2002, which applies a more stringent international accounting and auditing standard. It feels far more honest when it says that it aims to minimise the tax burden upon its shareholders by using methods outlined by the UK government. Taxes may be a certainty but nobody wants to pay a penny more in taxes than they have to.

Published in Analysis
Tagged under
  • GCW342
  • Tax
  • Lucky Cement
  • Pakistan
  • Ethiopia
  • LafargeHolcim
  • US
  • India
  • Cemex

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