Pakistan budget 2018-19 offers mixed incentives to cement industry

Pakistan's Federal Minister for Finance, Revenue & Economic Affairs, Dr Miftah Ismail, presented the country's Federal Budget 2018-19 in the National Assembly on 27 April 2018. Analysts have termed the budget for cement industry "Negative to Neutral" although it provides a mixed bag of incentives for cement manufacturers and exporters.

The government expects GDP growth of 6.2 per cent for FY19 as compared to 5.8 per cent for FY18. Industrial growth remains the major contributor at an estimated 7.3 per cent as compared to 5.8 per cent in FY18.

According to proposed measures, the Federal Public Service Development Program (PSDP) is reduced to PKR800bn (US$6.9bn) from PKR1001bn (US$8.6bn). The Federal Excise Duty (FED) on cement has been increased to PKR1.50/kg from PKR1.25/kg. This is expected to result in an increase in cement prices by PKR0.15/bag. Both measures indicate that the government intends to reduce its expenditure for the year, according to analysts. They envisage an impact on cement sales, while also affecting associated construction industries. Cement manufacturers are predicted to pass on the cost to the consumers to maintain their margins.

However, the government proposed to reduce import duty on coal from five to three per cent and corporate tax by one per cent, which will reduce cost of production for cement manufacturers.

In other measures, Pakistan's government has allocated PKR122bn for Dasu hydro power project, Neelum Jhelum hydro power project and Tarbela fourth extension hydro power project, which are expected to raise cement demand.

A tax credit on BMR and a tax holiday will be applied on Greenfield projects for companies commissioning their projects by June 2021 against a target set of June 2019. This expected to greatly benefit to cement companies completing their expansion projects during these periods.