After around Tk42,000 crore in investments, now around 35 active cement manufacturers are capable of producing 8 crore tonnes of cement each year, while the annual demand is yet to cross 3.5 crore tonnes
The country's cement industry is frustrated to see no supportive response from the government in its worst time in businesses.
The sector desperately needs a breathing space as it has been burdened with overcapacity, raw material costs, pandemic-led demand slump and most importantly the adverse tax structure.
In a post-budget press conference on Thursday, Bangladesh Cement Manufacturers Association (BCMA) leaders have requested that the government respond to their pre-budget pleas to withdraw the advance income tax (AIT) on raw material imports and cement supply alongside rationalising the import duty on raw materials.
The rise and overcapacity
The annual per capita cement consumption has grown from 45kg to 200kg in the last two decades in line with the economic development of Bangladesh.
The industry – keeping government's visions at the forefront– has significantly increased capacity. Still, majority of it remains unutilised with construction losing the expected pace, said Md Shahidullah, vice-president of the BCMA.
After around Tk42,000 crore in investments, now around 35 active cement manufacturers are capable of producing 8 crore tonnes of cement each year, while the annual demand is yet to cross 3.5 crore tonnes.
This resulted in an extreme price war, and the industry players could not get rid of it despite several industry initiatives in the last few years.
Moreover, the industry's production capacity is going to be enhanced by 1.1 crore tonnes in the next three years.
Pandemic bites on top of the slowdown
Infrastructure investments from both public and private sectors had helped the cement industry grow at a double-digit rate until 2018. But in 2019, the industry grew 6.38 percent only.
At the same time in the fiscal year 2019-20, the government imposed 5 percent AIT on imports of raw materials, which was reduced to 3 percent since the beginning of this calendar year.
As the AIT is not adjustable, it is taken away regardless of whether the companies make profit or not. Heavyweight cement companies like Heidelberg and Crown posted significant losses in stock exchanges for their first half up to December 31.
However, the sector was trying to make a turnaround with the help of 2 percentage point reduction in AIT since January last.
But, here came the pandemic that led to 90 percent of their capacity being unutilised during the 66-day shutdown. The economic impact of Covid-19 has still kept the industry depressed.
No but a few construction sites are rolling now, and the cement industry is running with less than 40 percent of capacity utilisation which is insufficient for the factories to break even, BCMA President Alamgir Kabir said in the online press conference.
The coronavirus shutdown has already caused an estimated Tk3,000 crore loss for the industry as it has all the fixed costs, including salaries and wages of staff.
The industry needs at least two years to recover the losses, and it will take more time if the situation does not improve soon, said Kabir, also the managing director of Crown Cement producer MI Cement Factory Ltd.
The turnaround would depend on how the economy recovers from the pandemic and its effects.
"It is very unfair not to make AIT adjustable in case of no ultimate profit for the taxpayer companies, we do not know if any country makes the advance tax an ultimate takeaway in the form of minimum tax," Alamgir Kabir said.
"Also, in Bangladesh, we find no industry with such a huge burden of minimum tax."
"As there is no profit, the cement sector is being forced to pay it from its capital base. We want it to be abolished, or at least adjustable with ultimate income," Kabir disseminates the plea of his fellow manufacturers.
They also requested that the government withdraw 3 percent AIT on cement supply from the factories.
There are over Tk750 crore in AIT stuck unadjusted in the national exchequer, paid by the cement industry and not being refunded. The industry is missing an estimated Tk75 crore of interest income each year.
The Income Tax Ordinance of 1984 said if the paid advance tax surpasses the payable amount, the National Board of Revenue (NBR) will refund the excess, and if there is any delay in refund, taxpayers will get 7.5 percent interest on the excess amount.
But nothing happens, and the BCMA requests an immediate release of the refundable amount so that the companies get some cash to stay afloat. The cement industry has a debt of over Tk30,000 crore.
Alamgir Kabir also said almost 100 percent raw materials for cement factories are imported and the main item clinker is subject to Tk500 import duty against the import of per tonne. Based on the import price of $42 for a tonne of clinker, effective import duty goes as high as 14 percent, which is highest among cement manufacturing countries which depend on imported raw materials.
The BCMA demanded the import duty at 5 percent or Tk300 per tonne.
The industry, also exporting some cement, now contributes Tk5,000 crore to the national exchequer each year alongside employing tens of thousands of people.
It would face factory closures if the government keeps turning a deaf ear to the crisis, feared cement manufacturers.