Union Budget 2015-16: Reduce tax burden on cement industry

The economic slowdown in the past few years and the consequent drop in government spending in infrastructure have taken a heavy toll on the construction sector.

Vinita Singhania        Last Updated: February 23, 2015  | 21:45 IST

Vinita Singhania
The government should look at reducing the heavy tax burden for the cement industry. Cement is the most essential infrastructure input for construction of roads, airports, besides housing and other real estate. However, it faces a heavy tax burden such that annual tax revenue accrued by the government from the sector is Rs 35,000 crore, next only to tobacco, liquor and petroleum products.

Moreover, total government levies and taxes on cement account for about 55-60 per cent of the ex-factory realisation price of cement. The economic slowdown in the past few years and the consequent drop in government spending in infrastructure have taken a heavy toll on the construction sector.

For its revival, it is essential that such a crucial core sector like cement be also stipulated as 'Declared Goods' for tax purposes to put it on an equal footing with other core sectors like coal, steel, crude oil etc. Besides, a uniform rate of excise duty should be levied on cement and on ad valorem basis instead of transaction value. Also, the current rate of 12 per cent is very high and needs to be cut to about 8 per cent.

The Budget should also address the inverted duty structure. Due to inadequate availability of crucial inputs like pet coke and gypsum, the cement industry is forced to procure the shortfall through imports. However, the existing duty structure imposes an unnecessary burden on the sector, such that import of pet coke and gypsum attract 2.5 per cent customs duty, while import duty on cement is nil.

This results in an anomaly where import duty on inputs is higher than the finished product. This duty inversion needs to be corrected.

The government should look at conferring 'infrastructure status' to cement. Section 80-IA(4) of the Income Tax Act allows deduction on income earned by any enterprise that is developing, or operating and maintaining, or developing, operating and maintaining any infrastructure facility. Since cement plays a crucial role in providing the basic material to develop infrastructure facilities, the benefits should be extended to this sector. Already, other sectors like power and oil have been awarded this status, which helps them facilitate faster environmental clearances, smoother facilitation of funds and greater availability of raw material.

The author is Vice Chairman & Managing Director, JK Lakshmi Cement

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