Cement - Budget Impact

Cement – Budget Impact

Public Sector Development Program

The Public Sector Development Program (PSDP) has been marginally raised by 5% to PKR549.7bn for FY09 against the last year’s budgetary target of PKR520bn. The government has announced the construction of 314 small dams while continuing with major infrastructure projects such as raising of Mangla Dam and budget allocations for Mirani Dam, Sabakzai Dam, Kurram Tangi Dam, Gomal Zam Dam, Greater Thal Cannal, Kachhi Canal etc. Meanwhile, the government has deferred any announcement on the construction of the controversial, Kalabagh Dam.

Central Excise Duty (CED)

Central Excise Duty (CED) which stood at PKR750 per ton (PKR37.5/bag) has been raised to PKR900/ton (PKR45/bag).

General Sales Tax (GST)

GST has been raised by 100bps to 16%.

New tax system on real estates

A new taxation system is being introduced for builders and developers, whereby the builder would be required to pay tax @ Rs.50 per sq. ft. of the covered area of a unit. The developer of open plots would be subjected to tax @ Rs.100 per sq. yard of the plot.

Low cost housing

It has been proposed that 1 million housing units be added to country's housing stock, for low income groups and government employees. It has also been decided to allocate Rs.2 billion as a revolving fund which will be further expanded in future.

Impact – Neutral

• The decision to marginally raise PSDP allocation would not have any major impact on cement sales since cement demand largely emnates from private sector projects and exports. We would, however, like to caution that any major issue on the macro economic front like the persistent twin deficits may force the government to slash PSDP allocation during the year.

• A marginal increase in CED by PKR7.5/bag would not have any major impact on the costing of cement companies especially given the sector’s orientation towards exports, where margins are high. Accordingly, we foresee exports rising during the times to come and serving as a mitigant to the government’s decision to maintain CED at current levels.

• The decision to raise GST by 100bps would not have any significant impact given its pass-through nature.

• The announcement to build 1.0 million housing units to the country’s housing stock should augur favourably for the sector.

• On the other hand imposition of tax on real estate may hamper rising foreign and local investment in the sector, which may result in a decline in construction activity in the country.