Cement prices to fall on possibility of tax cut

The domestic cement industry sees a strong possibility of a softening in cement prices if the government cuts the high taxes levied on the commodity. The sector is keen to pass on any cost advantage that may emerge out of a reduction in levies and taxes.

Cement has a weightage of 1.73 per cent in the WPI (wholesale price index) and has been witnessing inflation levels of about 10-15 per cent in recent times. Prices of cement in the domestic market have moved up 30-40 per cent over the past one year to Rs 210 per 50 kg bag.

The finance minister last month said there was some kind of price manipulation by cement manufacturers through artificial holding back of stocks. But the industry denies this. According to Cement Manufacturers' Association of India (CMAI) data, 112.82 million tonne of cement was produced and 112.25 million tonne dispatched during April-December 2006.

"The industry will pass on the advantage of reduced taxes and levies to consumers and its impact will be seen at the retail level," said Manoj Gaur, president of CMAI and executive chairman of Jaiprakash Associates, a leading cement producer.

"There is a clear discrimination between steel and cement so far as the government's taxation policy is concerned. Ideally, in a growing economy like ours, this should not have been the case as steel and cement are equally critical for development," he said.

For instance, the cement industry pays a royalty of Rs 67 for the limestone it uses in manufacturing a tonne of cement, while the steel industry pays a royalty of only Rs 16 for the iron ore it consumes in producing one tonne of steel. Again, the cement industry is subject to a high VAT (value-added tax) of 12.5 per cent, while the steel sector pays a VAT of 4 per cent. In total, the levies and taxes amount to Rs 931 a tonne and accounts for close to 30 per cent of the final price, Gaur said.

Cement prices have gone up only 26 per cent over the past one year, while the costs of inputs such as coal and power, which are monopolised by the Centre or state governments, have moved up higher, said Rahul Kumar, chief operating officer, Jaiprakash Associates.