Taxes, policy gaps drive cement prices higher: CCP report

The Competition Commission of Pakistan has released a detailed sector study report highlighting structural issues behind rising cement prices, saying increases are not solely driven by supply and demand but also by taxation and policy shortcomings.

According to the report, taxes and duties account for as much as 38% of cement prices, with nearly half of the retail cost attributed to taxation. The price of a 50-kilogram cement bag has risen from PKR 822 to PKR 1,091, the commission said.

Despite a doubling of production capacity, utilization remains at just 53%, reflecting a slowdown in demand. The report noted a decline in cement consumption in both northern and southern regions of the country.

Market concentration is another concern, particularly in southern areas where a few large companies dominate. The commission also pointed to monopolistic practices in coal imports as a key factor driving up production costs.

Regulatory inconsistencies between provinces, especially differing transport laws, are contributing to cost imbalances, while varying mineral royalty regimes are affecting competitiveness across the sector.

The report further warned that smuggled and counterfeit cement is harming the market and poses potential risks to public safety.

There are no major tax differences that affect the competitiveness of cement manufacturers across provinces. Both Federal Excise Duty (FED) and Sales Tax are applied uniformly under the federal fiscal framework, ensuring consistent treatment for all producers nationwide. However, the FED has increased from PKR 1,000 to PKR 4,000 per ton over the past five years, while the Sales Tax rate has increased from 17% to 18%.

On the other hand, royalty on minerals being the provincial subject varies considerably across provinces. Punjab has also adopted a different mechanism by charging royalty on limestone (a key raw material for cement manufacturing) at 6% of the ex-factory price of cement. Other provinces continue to apply fixed per-ton royalty rates. Notably, Khyber Pakhtunkhwa has increased its rate from PKR 250 to PKR 350 per ton effective July 2025, whereas rates in Sindh and Balochistan remain comparatively lower at PKR 130 and PKR 120 per ton, respectively.

Impact of taxes and duties on cement prices

In reviewing the overall cost structure of the cement industry, it can be observed that fuel and power are the major cost components, reflecting the sector’s heavy reliance on energy inputs. However, once the production costs are translated into the ex-factory price, the burden of taxes and duties becomes equally prominent.

Industry estimates indicate that fiscal levies alone add approximately PKR 400-500 per 50 kg bag ( forms approx. 50% of the cement price), making taxation a major determinant of the final cost of cement alongside core manufacturing expenses. This demonstrates that cement pricing is shaped not only by operational efficiency and input costs but also by the cumulative weight of the taxation framework.

The pricing mechanism is principally based on market dynamics of demand and supply, with the price being determined after due consideration of factors i.e. cost of production, distribution expenses, freight costs, applicable duties and taxes. Market forces have a key role in determining prices as publicand private spending directly affects the demand for cement, according to the report.

The price of coal is subject to fluctuations in the international market. Consequently, any variations in these components has a direct bearing on the overall pricing framework. The coal prices during the year 2022 exhibited extreme fluctuations amid geopolitical tensions affecting the global supply and disrupting the overall international fuel markets.

The commission stressed that reforms in the cement sector are essential, calling for improvements in tax policy, energy pricing, and regulatory systems. Without immediate action, construction costs are expected to rise further, negatively impacting housing and industrial development.

The Competition Commission of Pakistan has proposed a comprehensive reform strategy aimed at restoring competitive balance, reducing barriers to entry and expansion, and promoting the development of the mineral resources sector.

Key recommendations include harmonizing axle load regulations across provinces, modernizing transportation infrastructure, and implementing policy measures to enhance efficiency and reduce costs in the cement industry.