Displaying items by tag: Tax
Housing and infrastructure spending to speed up Indian cement demand in 2018 - 2019
28 February 2018India: The credit agency ICRA forecasts that cement demand will grow by 4.5% in the 2018 – 2019 financial year due to growth in the housing sector and higher infrastructure spending. Improved rural incomes, higher rural credit and increased allocation for rural, agriculture and allied sectors are also likely to increase the demand for rural housing, according to the Press Trust of India.
Indian cement production rose by 2.7% to 217Mt in the nine months from April to December 2017 from 211Mt in the previous year. However, the first three months of this period, from April to June 2017, saw production drop due to local issues across the country such as a sand shortage, the implementation of Real Estate Regulatory Authority (RERA) Act and a drought. The following quarter then saw a fall in production due to the introduction of the Goods and Services Tax (GST), continued sand shortages and inclement weather. ICRA predicts that cement demand will grow by 3% for the remainder of the 2017 – 2018 financial year due to a boost in production in December 2017.
Pakistan: Lucky Cement has obtained restraining orders from the Peshawar High Court to prevent its Pezu plant being closed by the Excise and Taxation Department for not paying a US$135,000 property tax bill. A team from the Excise and Taxation Department attempted to close the site on 23 February 2018, according to the News International newspaper. The cement producer says that the plant continues to produce cement and despatch its products. The tax office has launched a drive to target tax defaulters in the region. It alleges that it has been chasing Lucky Cement’s tax bill for the past six years.
Pakistan cement producers ask government to raise import tariffs
02 February 2018Pakistan: The local cement industry has asked the government to increase the custom duty on imported clinker to support local production as export rates continue to decline. The industry has also recommended that cement importers should be registered with the Pakistan Standards and Quality Control Authority (PSQCA) and country of origin bodies, according to the Nation newspaper. Falling exports in Afghanistan have been blamed on Iranian competition and high local energy costs.
HeidelbergCement warns of knock to profit in 2017 before boost in 2019 following US tax reform
03 January 2018US: HeidelbergCement expects its profit to be negatively effected in 2017 following reforms to the US tax system. Following a change in the rules from 22 December 2017 the federal corporate tax rate has been reduced from 35% to 21% from the start of 2018. In addition, the regulations regarding the utilization of loss carryforwards were changed. This has affected deferred tax assets on losses and interest carried-forwards that are expected to reduce the group’s balance sheet by Euro200m in its annual report.
However, the company still expects a ‘significant’ increase of 2017 group share of profit before one-time effects. In addition in 2019 the major reduction of the effective tax rate in the US is anticipated to have a positive effect on group net profit and cashflow.
Cement producers cross about Indian tax classification
13 November 2017India: The Cement Manufacturers Association (CMA) says it is disappointed for the entire industry following the Goods and Services Tax (GST) Council’s decision to retain cement in a higher tax rate. The GST Council has reduced the tax rate on a wide range of commonly used items, from chewing gum to detergents, to 18% from 28%, according to the Press Trust of India. However, cement, along with paints, has remained at the 28% rate, despite the expectations of the cement industry.
"The retention of the cement in the 28% GST bracket, along with luxury items such as washing machines and air conditioners is quite unfortunate," said CMA President Shailendra Chouksey. He added that cutting the tax rate of cement could have hastened the recovery of the industry from a current slow period.
ICRA anticipates cement demand growth towards end of 2017 - 2018
31 October 2017India: ICRA is expecting cement demand is pick up in the fourth quarter of the 2017 – 2018 financial year following weak real estate activity, sand shortage and Goods and Service tax (GST) implementation issues in the first half of the year. In its October 2017 update the credit ratings agency said that demand was expected to benefit from the housing sector and road and irrigation projects in the infrastructure sector, according to the Press Trust of India. It added that the profitability of the industry depends on the industry’s ability to control prices given that higher input costs for fuel and freight are expected.
The credit ratings agency said that cement demand remained subdued across the country due to various local issues. In the North, especially in the states of Uttar Pradesh and Punjab, the offtake had been impacted by a sand shortage and lack of labour. In the West the implementation of the Real Estate Regulatory Authority (RERA) Bill resulted in construction activity slowing down. In the South, Tamil Nadu and Kerala were hit as demand was affected by the sand shortage, drought impacting rural offtake and weak housing activity. A recent ban on sand mining in Bihar is also likely to reduce sales volume growth in the eastern region in coming months.
Closing the demand gap in India
04 October 2017It’s been a pessimistic month for the Indian cement industry with Ministry of Commerce & Industry data showing that cement production has fallen year-on-year every month since December 2016. This was followed by the Cement Manufacturers Association (CMA) saying that the industry was sitting on 100Mt/yr of excess production capacity. Now, the credit ratings agency ICRA has followed the data and downgraded its forecast for cement demand growth to not more than 4% for the 2017 - 2018 financial year.
Graph 1: Annual cement production in India. Source: Ministry of Commerce & Industry.
Graph 2: Monthly cement production growth rate year-on-year in India: Source: Ministry of Commerce & Industry.
Graph 1 shows a production peak in the 2015 - 2016 financial year before falling monthly production broke the trend in the 2016 - 2017 period. Graph 2 pinpoints the month it started to go wrong, November 2016, when the government introduced its demonetisation policy. Production growth went negative the following month in December 2017 and it hasn’t managed to right itself since then and grow. It’s convenient to blame the government for the slump in production but it troughed in February 2017 before taking a lower level of decline since then.
The Reserve Bank of India (RBI) annual report in August 2017 suggests that the policy failed in its principal purpose of reducing the kind of corruption that a cash heavy economy can hide such as tax avoidance. People reportedly managed to find ways to bypass the bank deposit limit and may have successfully laundered large amounts of cash without being caught. However, as commentators like the Financial Times have pointed out, the longer term implications of forcing the economy towards digital payments and increasing the tax base could yet be beneficial overall.
Graph 3: Cement production capacity utilisation rates in India. Source: UltraTech Cement.
Moving on, the CMA has blamed production overcapacity for the current mess and Graph 3 shows the problem starkly. If anything the CMA appears to have downplayed the over capacity crisis facing India, as UltraTech Cement’s figures (using data from the Department of Industrial Policy and Promotion) show an overcapacity of 155Mt in the 2016 – 2017 year and this will grow to a forecast 157Mt in the next financial year, even though the utilisation rate is expected to rise slightly. UltraTech Cement’s estimates don’t see the utilisation rate topping 70% until the 2020 – 2021 financial year. Analysts quoted in the Mint business newspaper concur, although they reckoned it would the rate would bounce sooner, in 2019 - 2020. Last month when the CMA moaned about the industry's excess capacity it pinned its hopes on infrastructure schemes like the Mumbai-Ahmedabad bullet train. This prompted an official at JK Cements to say that he didn't think that one train line was going to make much of a difference.
This is one reason why ICRA’s and the other credit agencies’ growth rate forecasts for cement demand are important, because they indicate how fast India might be able to close the gap between production capcity and demand. Unfortunately demonetisation scuppered ICRA’s growth prediciton for 2016 – 2017. It forecast a rate of 6% but it actually fell by 1.2%! So downgrading its forecast for 2017 – 2018, with fears of weather and the implementation of the Goods and Services Tax (GST) in the second half of the year, is ominious. Major cement producers such as Ultratech Cement and Ambuja Cement have based their road to recovery in their latest investor presentations on a 6% growth rate or higher. Pitch it lower and the gap doesn’t close. Here’s hoping for a brisk second half.
Brazil: The state government of Mato Grosso has reached an agreement with Votorantim to recover US$79m in tax from Votorantim. The payment refers to an under-payment of tax made in error by the company's cement plants in Corumbá and Nobres in 2015, according to Midia News. The state’s tax recovery unit absolved the cement producer of any blame, instead attributing the error to an interpretive issue.
Irish producers warn over green energy levy
16 August 2017Ireland: A proposed Euro100m rise in Ireland’s green energy levy threatens the recovery in construction, according to building materials suppliers. The Commission for Energy Regulation (CER) wants to increase the Public Service Obligation (PSO) levy on electricity bills by Euro104m to Euro496.5m from October 2018 to support renewable energy developers and peat-fired power plants.
However, cement and concrete manufacturers, whose businesses face high-energy bills, have warned the regulator that such a move could hit jobs and endanger the recovery in construction. In a submission to the commission, manufacturer Kilsaran International said that, "Irish electricity prices are among the highest in Europe and the yearly increases in the PSO levy only serve to undermine the cost base and competitiveness of Irish companies, thereby limiting the potential for growth and job creation.”
Many other companies in the industry submitted versions of the same letter to CER analyst Gráinne Black, pointing at the likely cost of the increase to their businesses and its implications for job creation.
According to the CER large energy users, which include cement and concrete producers, will pay Euro234.2m of the Euro496.5m total. The charge guarantees the price paid for electricity to wind farms, other renewable energy producers and peat-fired plants. It is meant to implement government policy to support green electricity generation.
Iraq slaps 45% tariff on Iranian cement
26 July 2017Iran/Iraq: Iraq has imposed a 45% tariff on cement import from Iran, according to the head of non-metal mine products and the Department of Ministry of Industries and Business in Iran. Seifollah Amiri of the Tehran Chamber of Commerce said, “Currently, only exporting clinker to Iraq is possible.”
Iran exported 12Mt of cement worth US$695m in the Iranian fiscal year that ran to 19 March 2017. Iraq took US$441m worth of material. Assuming that all exports are the same price per tonne, this equates to around 7.6Mt of cement.