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Cement plants demand sales tax exemption

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It will improve investment climate and restore investors' confidence

Special Correspondent, Islamabad
Mar 13 - 26, 2000

NWFP Cement units last week joined Hub Power Company in urging the new government to undo the politically motivated economic decisions that have led to the poisoning of the investment climate in Pakistan. The cement units are demanding restoration of the sales tax exemption that encouraged their sponsors to establish plants worth billions of rupees in less developed areas of Pakistan.

NWFP cement plants represented to the Federal government last week that it was in the interest of improving investment climate and restoring investor confidence in continuity of economic policies that the government acted to restore the year-long sales tax exemption to cement plants per the original incentive package.

Representatives of these cement plants said they wished to bring home the message that the shortest way to restoring investor confidence was not through devising and announcing new economic policies, but ensuring justice to those who have suffered at the hands of discontinuity of policies. ìThe best way to show to the world that this government means business is to undo the wrongs of the past governments to cure industry of ills that stemmed from political vendetta,î representatives of cement industry in NWFP said. ìPoliticians levelled serious allegations of corruption and nepotism against each other, always making industry and businesses the scapegoats in mud-slinging matches between the two major parties,î was the message — loud and clear.

Representatives of these cement plants were hopeful that the present government had no political ambitions or political agenda of its own, and therefore best suited to deliver level playing field for each investor in Pakistan.

But there is another twist to the cement manufacturersí story that adds further spice. The cement manufacturers have in their opponents not just the former government that withdrew sales tax holiday on the pretext that it was meant to favour certain entrepreneurs but also their competitors in business. Other cement manufacturers have persistently maintained that the incentives available to NWFP plants amount to death warrants of down country cement plants.

NWFP cement plants sponsors said they had expected some relief from the committee headed by Finance Minister Shaukat Aziz to give practical shape to the Chief Executiveís promise of restoring investor confidence but that too has not come forth in the three months since the committee was constituted.

"As soon as the committee started its deliberations, the powerful industrial mafia owning privatised cementplants began a campaign to thwart official efforts to restore investor confidence," representatives of these cement manufacturing units of NWFP told newsmen last week.

These industrialists point out that the incentives that lured them into setting up their plants in NWFP came as early as in 1991 as part of an industrial policy to attract domestic and foreign investment in the underdeveloped areas of the country. The policy was backed by safeguards enacted through the parliament vide Protection of Economic Reforms Act 1992. The Act provided that fiscal incentives for investment provided by the government through statutory orders will continue for its term and will not be altered to the disadvantage of investors.

These representatives said one of the incentives provided under this policy was sales tax exemption to mega projects set up in the underdeveloped areas for a period of five years. This incentive attracted a large amount of domestic and foreign investment in the country. These projects included some cement plants.

It was around this time, according to representatives of cement plants in the NWFP, that some cement plants owned by a powerful industrial conglomerate went through major expansion in the developed areas of Punjab. They said this group acquired major state-owned cement plants under the privatisation scheme of the government and managed through its close relations with the previous government to withdraw sales tax concession to the new plants set up in the underdeveloped areas of NWFP.

"The relationship of these vested interest with the previous government worked and the concession was withdrawn through an executive order in flagrant violation of the promises made under the industrial policy and protected by a law in force."

These representatives deplored what they called a campaign launched by a group of interested cement companies against the steps being contemplated by the present government to re-establish credibility of the investment policy. They said that this activity is apparently aimed at frustrating the positive efforts of the government

They said the assertion that exemption of sales tax to four out of 23 cement manufacturing units was causing colossol loss to the state exchequer was baseless, incorrect and contrary to the facts, as the exemption referred to by the cartel were not available.

"The exemption is yet to come and will be valid for one year only. A similar campaign that the restoration of concessions cost the government Rs4 billion per annum has no basis. The amount of concession is highly exaggerated and the actual benefit to these units will not be more than Rs 600 million. The amount is only a methodically calculated amount and is most likely to be offset by the increased production."

The underdeveloped areas where the cement plants were set up were granted customs duty exemption on plant and machinery imported up to June 30, 1995. The consignments of machinery of these new plants, entering the country after July 1, 1995, were made liable to duty and sales tax. However, to please and benefit the vested interests, the previous government allowed full exemption of duty to plant and machinery imported for plants in Punjab imported in 1996 and 1997. These representatives were surprised to note that while left-over machinery of plants conceived in 1993 and arriving in the country with shipment delays of a few weeks were made liable to duties, the plants imported in 1996 and 1997 for the developed areas were exempted from duty through a notification.

On plant to plant basis, Lucky Cement paid more than Rs2.93 billion as central excise duty till today since it went into production in June 1996, the Bestway Cement, Hattar (which was established with exclusive foreign money of US $150 million excluding loans secured from foreign banks) paid more than Rs1487 million since July 1998 when it started production, and the Army Welfare Trust Cement Plant, Nizampur, paid Rs 1.62 billion as CED since 1996.