Mumbai: Secretary General of Cement Manufacturer's Association, the representative of the Indian cement industry, has proposed a wish-list of sorts to the finance minister for his consideration before he sets about his annual budget exercise.

Highlights of the associations' memorandum include:

Taxes and Levies
Cement is the highest taxed essential infrastructure input in India, with various government levies and taxes cumulatively making up around 60 per centor more of the ex-factory price.

These levies are very high when compared with 17 countries in the Asia Pacific (APAC) Region where the total average tax on cement is 11.4 per cent, with the highest levy of 20 per cent being in Sri Lanka.
 
The association has requested that central levies and excise duty on cement be reduced to input more affordable housing and infrastructure projects, and to level the playing field with international competition.
 
Excise Duty on Cement
The three – tier system of excise duty levied on cement in the Union Budget 2007-08, the association has requested for an abatement. The absence of the abatement, according to the industry body, results in a tax on trade margins, and a tax on tax.

This can be corrected by providing abatement on the excise duty levied on MRP. Such abatement is provided to all products where levy is linked to MRP.

The NCAER report of 2005 suggested an Abatement of 55 per cent for grey cement. White Cement receives an abatement of 35 per cent on MRP.
 
The association has requested for an abatement of 55% as per the NCAER report of 2005.

Sales Tax/VAT
For any construction projects including infrastructure the two main materials required are cement and steel. 

VAT on cement and clinker has been kept at 12.5 per cent, while it is 4 per cent on steel.
 
The association has asked the government to bring the rate of VAT on cement and clinker, which is currently 12.5 per cent, in line with similar important construction materials like steel at 4 per cent.

This would help the industry to reduce cement prices by Rs20 per bag.
 
Customs Duty on Coal and Pet Coke
Coal is the main fuel for the manufacture of cement. The association says that there is always a shortfall of coal supplied against the quantity required.

During the year 2006-07, the industry needed 25 million tonnes of coal, but received 14.43 million tonnes, against linkage of 15.48 million tonnes through FSAs signed between coal companies and cement companies.

For the rest of the requirement, the industry had to depend upon the open market, imported coal and alternative fuels like pet coke.

However, there is an import duty of 5 per cent on coal and pet coke, while on final product cement no import duty is levied.

To sustain cement production to meet the growing demand, the industry requests the government to abolish customs duty on coal and pet cokes, and correct the inverted pyramid structure of duties existing in cement imports.

Duty on Cement Import
In view of the imbalance in demand-supply situation of cement and consequent cement prices, Government chose to permit easy imports, for which in the Budget 2007-08, announced in Feb.2007, the customs duty has been reduced to zero while excise duty on cement has been increased by 50 per cent.

Further, the CVD on import of cement has also been withdrawn. These measures have brought distortion in the level-playing field between domestic production and imported cement.

The growth in cement demand projected by the Planning Commission can be met only if domestic capacity and production increase to the required level. The domestic cement players have always responded in the past by creating capacity ahead of growth in demand.

This led to low prices of cement due to intense market competition. Till 2005, there were hardly any profit margins leading to many companies being pushed to BIFR or takeovers. With spurt in demand in 2005-06, the capacity utilization increased to 94 – 96 per cent, in some months even 100 per cent.

With further growth in demand there is need for creating additional capacities. The domestic players have ploughed in their profits, which they earned in the last quarter of 2005 and 2006 in creating of fresh capacities.

The cement industry is currently in the process of implementing capacity additions through expansions/Greenfield projects to the extent of 100 mn.t. in the next 3/4 years to cope up with the growing cement demand. If the realizations are affected, the investments in new capacity creation would be delayed or even dropped which is not a healthy situation for our growing economy.  For domestic investments to take place, at least some level-playing field has to be provided by re-imposing CVD.

It is, hence, requested that CVD be re-imposed to the extent of excise duty on cement imports, as this would provide a level-playing field for the domestic manufacturers.
 
Supply of Fly Ash
Fly ash is an environmentally hazardous waste product. The cement industry is one of the major consumers of fly ash, which has been a source of problems of disposal for the power sector, which is one of the biggest producers of the waste.

Cement industry consumes around 25 per cent of fly ash. Fly ash produced in our country was initially given free of charge as per the MoEF Gazette Notification dated 14 September 1999, which specified that "Every coal or lignite based thermal power plant shall make available ash for at least 10 years from the date of publication of this notification, without any payment or any other consideration for the purpose of manufacturing ash based products".

However, for the past 1 - 2 years, the power sector has been charging for the supply of fly ash under the pretext of certain development charges. This is against the concept of 'Polluter Pays' adopted in the draft Environmental Policy.

Continued escalation in the cost of fly ash will result in a progressive adoption of OPC Cement, with consequent increase in the quantum of the future hazardous waste problem and depletion of limestone reserves at a rapid pace.

It is hence requested that fly ash be supplied to cement manufacturers at no cost, as the industry has incurred substantial investments not only for fly ash collection but also on additional equipments for handling, storage, conveying and grinding fly ash with cement.  It will also establish the principle ''Polluter Pays''.