Cement sector vs Pakistan's FBR: Association says sales tax evasion claims incorrect

Pakistan's cement industry has raised questions over the accuracy of government claims that manufacturers evade sales taxes amounting to PKR 18 billion ($64 million).

At a press conference last week, Finance Minister Muhammad Aurangzeb and Chairman Federal Board of Revenue (FBR) Rashid Mahmood Langrial presented a data analysis on sales tax evasion by various industrial sectors.

Responding to the claims made by government officials, Chairman All Pakistan Cement Manufacturers Association (APCMA) Muhammad Ali Tabba wrote in a letter to the finance minister, “The conclusions drawn, particularly in relation to the cement sector, are based on an incomplete and, at times, flawed understanding of the industry's operational complexities.”

“We are particularly concerned by the assertion that a higher coal cost automatically indicates tax fraud, which simplifies a much more complex reality.”

He said coal is a key material in cement manufacturing, and its consumption is influenced by various factors that were overlooked in the FBR's analysis.

The letter explained that older cement plants use more energy and coal because of outdated technology, while modern plants use less due to advanced systems. Ignoring these differences, the FBR’s analysis gives an inaccurate picture of coal consumption.

Moreover, cement plants far from coal mines or seaports have higher transport costs and quality loss, while remote areas face an even higher cost for transport.

Cement prices vary across the country, and are determined by competitive pressure and market dynamics. They may not necessarily be directly linked to a specific plant's cost structure, the letter added. The FBR analysis failed to account for these geographic variations in logistical costs and coal consumption.

Besides, many cement plants use coal-powered captive power plants due to unreliable grid supplies and high tariffs, which boosts their coal consumption. Ignoring this factor skews analysis of coal use in production versus energy generation, distorting calculations, Tabba wrote in the letter.

The APCMA chief noted cement manufacturers bulk-buy coal when prices are low and stockpile it, leading to a disconnect between purchase and production, causing fluctuating input tax claims. The FBR analysis overlooked these practical realities.
Furthermore , without factoring in planned and unplanned maintenance, the analysis failed to present an accurate picture of operational efficiency and tax compliance, he added.

“The analysis shared by FBR overlooks these key elements and risks creating the erroneous impression that legitimate business practices are fraudulent,” Tabba noted.

The association suggested a meeting between industry representatives and the finance minister and FBR officials to present a detailed response and clarify operational and financial realities of the cement industry.