Displaying items by tag: Tax

The close of the first half of 2023 brought the latest crop of seasonal cement data from the Vietnam National Cement Association (VNCA). Vietnam sold 61.4Mt of cement and clinker during the first half of 2023, up by 2.7% year-on-year.¹ Graph 1 (below) tracks the progress of full-year Vietnamese cement and clinker sales over the six years up to 2022, as well as the most recent half-year.

Graph  1 - Vietnamese annual cement production, January 2017 – June 2023

The first half of 2023 marks the first half-year in which lockdown restrictions have been absent in both Vietnam and its main export market, China, since the start of the Covid-19 outbreak.² Vietnam was especially hard-hit: it implemented the first lockdown outside of China in March 2020, and has recorded the 13th most Covid-19 cases of any country up to July 2023. Then, the Russian invasion of Ukraine in 2022 caused uncertainties for cement producers and importers all around the world. Yet the price of imported coal across Southeast Asia had returned to pre-war levels by the end of June 2023.³ This indicates that the first half of 2023 may represent a ‘typical’ first half for the Vietnamese cement industry, for the first time this decade. During the 2010s, this meant growth margins of over 10% year-on-year.

During the first half of 2023, Vietnam’s sales volumes grew by 30% from pre-Covid-19 levels of 47.1Mt in the first half of 2019, confirming the industry trend of rapid capacity expansion. Just in the course of the half year, Vietnam’s integrated cement capacity rose by 7.9% to 123Mt/yr.⁴ It previously rose by 6.9% year-on-year to 114Mt/yr in 2022. That year, first-half cement sales also grew by 6.9% year-on-year, to 59.8Mt from 55.9Mt. In the first half of 2023, capacity growth has outstripped the country’s sales growth, of 2.7% year-on-year.

Meanwhile, Vietnam exported 15.7Mt of cement and clinker in the first half of 2023, 26% of its total despatches.⁵ This corresponds to a decline of 31% year-on-year from 22.7Mt (38% of despatches) in the first half of 2022 and a rise of 0.5% from pre-Covid-19 levels of 15.6Mt (33%) in the first half of 2019.

Chinese construction is the lynchpin in the Vietnamese cement industry’s current growth model. Over successive Five-Year Plans, it has consumed increasing volumes of clinker from Vietnam, as well as cement, at diminishing prices. This strategy overreached itself in the first quarter of 2023, more than a year into an on-going Chinese property market slump, when the value of Vietnam’s cement and clinker exports to the country fell by 95% year-on-year, to US$11.4m.⁶

By lowering prices, Vietnam’s cement sector charts a careful course within the contested waters of global trade rules, but it has run aground before. Most recently, from the start of 2023, the Philippines attached tariffs of up to 28% (and up to 55% for blended cement) to Vietnamese cement from 11 different producers.⁷ The Philippines Tariff Commission had found that ‘dumped’ cement from Vietnam – constituting over 50% of cement imports over the 18 months up to the end of 2020 – threatened the domestic industry. The failure to diversify its markets is a further sign that Vietnam’s current positioning in the cement and clinker trade is, at best, medium-term.

From October 2023, cement entering the European Union (EU) will become subject to extra taxes under the carbon border adjustment mechanism (CBAM).⁸ The EU is a relatively small trade partner for Vietnam, but the longer-term effect of this policy will be to replicate itself in the statute books of other nations and trade blocs, beginning in the Global North. With forecast lignite imports of 70 – 75Mt to Vietnam in 2023 – 2026, opportunities for cement exports from Vietnam, and countries like it, are diminishing.

The best situation for Vietnam would be accelerated growth in its domestic consumption base. The government is attempting to trigger a construction boom with its 2023 budget, which includes US$5bn in residential construction funding. Meanwhile, full-year infrastructure spending will rise by 25% year-on-year.⁹ To this end, it also needs to keep the cement price low. From 1 January 2023, Vietnamese exporters paid a tax of 10% of value on shipments of cement and clinker, instead of the previous 5% rate. If successful, this will nourish booming consumption with booming, and cheap, supply. Vietnam is grafting its Chinese model back onto the domestic market.

Producers will keep exporting. In May 2023, Nghi Son Cement Corporation despatched a first shipment of 31,500t of cement to the US. Nghi Son Cement Corporation’s cement, produced with fly ash, is clearly considered by the company and its owners to have some long-term marketability in the US. Said owners include Japan-based Taiheiyo Cement, which produces cement in the US via its CalPortland subsidiary.

In Vietnam, the cement industry has undergone a period of unparalleled growth, fuelled by exports. It can now reinvest the proceeds in establishing a self-sufficient construction sector around an ever more sustainable cement industry, ready to become the first choice across new markets as they arise in Southeast Asia and beyond.

1. Global Cement, 'Vietnam's first-half cement production declines in 2023,' 29 June 2023, https://www.globalcement.com/news/item/15941-vietnam-s-first-half-cement-production-declines-in-2023

2. The Observer, ‘‘It was all for nothing’: Chinese count cost of Xi’s snap decision to let Covid rip,’ 29 January 2023, https://www.theguardian.com/world/2023/jan/29/chinese-cost-covid-xi-lockdowns-china

3. Reuters, ‘Column: Asia thermal coal prices get the blues from Europe and LNG,’ 20 June 2023, https://www.reuters.com/markets/commodities/asia-thermal-coal-prices-get-blues-europe-lng-russell-2023-06-20/

4. Việt Nam News, ‘Record input costs thwart cement groups,’ 12 July 2023, https://global.factiva.com/ha/default.aspx?mod=SavedSearch_SelectSearch&page_driver=SavedSearch_SelectSearch#./!?&_suid=168119771197707004455190223307

5. Việt Nam News, ‘Industry: Vietnam’s Cement, Clinker Exports +82.2% y/y to $116M in Jun: GSO,’ 4 July 2023, https://global.factiva.com/ha/default.aspx?page_driver=searchBuilder_Search#./!?&_suid=168908188871006418595282713178

6. Vietnam Investment Review, ‘A strenuous year ahead in cement,’ 9 May 2023, https://vir.com.vn/a-strenuous-year-ahead-in-cement-101707.html

7. Global Cement, 'Philippines Department of Trade and Industry to impose anti-dumping duties on cement from Vietnam,' 22 December 2022, https://www.globalcement.com/news/item/15084-philippines-department-of-trade-and-industry-to-impose-anti-dumping-duties-on-cement-from-vietnam

8. Global Cement, 'Too taxing? How the CBAM affects cement exporters to the EU,’ 29 June 2022, https://www.globalcement.com/news/item/14316-too-taxing-how-the-cbam-affects-cement-exporters-to-the-eu

9. Customs News, ‘Cement enterprises expect a "brighter" second half of 2023
https://english.haiquanonline.com.vn/cement-enterprises-expect-a-brighter-second-half-of-2023-25368.html

Ghana: The Bureau of National Investigations (BNI) and the Ghana Revenue Authority (GRA) have arrested managers of Wan Heng Ghana. The Business and Financial Times newspaper has reported that the cement producer is suspected of neglecting to pay US$43.1m in tax. An investigation showed that the company received sufficient imported clinker to produce US$120m-worth of cement between 2018 and 2021, yet declared only US$19.6m-worth of sales. Management then reportedly refused to cooperate with further investigations, leading to the arrests. Wan Heng Ghana produces Sol brand cement.

The Chamber of Cement Manufacturers Ghana (COCMAG) affirmed its commitment to ensuring fair competition and ethical practices within the cement industry. It represents cement producers in the country, including Wan Heng Ghana.

India: Shree Cement has rejected findings by the government's Income Tax Department of tax fraud worth US$2.8bn. NDTV News has reported that the producer's alleged financial mismanagement resulted in losses of up to US$170m/yr for national and state governments. The mismanagement reportedly included the use of forged documents. Authorities conducted a second set of searches at company sites in Rajasthan during the week ending on 25 June 2023, following preliminary searches on 21 June 2023.

Shree Cement said "The company's management team is available and extending full cooperation to the officials. The information as required by the officials is being made available."

India: The government's income tax department has carried out raids at five locations belonging to Shree Cement. Reuters has reported that the authorities said they conducted 'survey action' on 21 June 2023.

India: The Goods and Services Tax Council will review the current imposition of a 28% goods and services tax on cement on 11 July 2023. The Telegraph newspaper has reported that the council is expected to recommend a reduction in the tax rate to the 18% band. Parliament’s Group of Ministers on Rate Rationalisation will then consider the recommendation.

Kenya: Parliament's Finance and National Planning Committee has rejected a petition from the Kenya Association of Manufacturers (KAM) for the removal of the 10% customs duty on imports of clinker. Business Daily News has reported that KAM member Rai Cement said that the duty will force cement plants to shut due to high costs. The committee, however, concluded that the levy aims to encourage local manufacturing, promote exports and create jobs for Kenyans.

National Cement, which operates the 1.95Mt/yr Kajiado cement plant in Merrueshi-Mbirikani, opposed the KAM line by submitting its own petition for an increase in the clinker import duty to 25%.

Cement producers in Bangladesh received a surprise at the start of June 2023 when the government budget proposed increasing the duty on imported clinker. The Bangladesh Cement Manufacturers Association (BCMA) reacted this week by calling for the duty on clinker to be reduced, while also calling for the same for a non-adjustable advance income tax (AIT) applied to associated imports and sales.

During a press conference, reported upon by the Financial Express newspaper and other media, BCMA president Alamgir Kabir said that the customs duty on key raw materials for the sector had previously been around 5% of the import value. However, he argued that the new suggested increased tariff was “disproportionate” because it placed the burden at 12 - 13%. He urged the government to treat the cement sector as a "priority sector" given that it was facing higher prices generally due to the aftermath of the Covid-19 pandemic, the energy shocks from the Russian invasion of Ukraine and negative currency exchange effects.

The BCMA’s latest lobbying call may sound familiar because it follows a similar battle against import charges from late 2022. A supplementary duty was introduced in November 2022 when the National Board of Revenue (NBR) changed the way limestone was coded in response to a significant increase in imports from 2020. At the time, the price of limestone imports reportedly nearly doubled. The BCMA may have won this battle because in March 2023 the NBR withdrew its supplementary duty. It did require that importers submit to further scrutiny including an updated Import Registration Certificate and various tax related requirements.

The timing of the NBR’s decision to relax the limestone duty is telling given that the previous month or so six of the country’s seven publicly listed cement producers reported either falling profits or losses for the second half of 2022 or the year as a whole. Only LafargeHolcim Bangladesh bucked the trend with an increase year-on-year in its annual profit after tax in 2022, although it attributed this to 95% volume growth in its aggregates business.

As discussed previously a characteristic of the cement sector in Bangladesh is that the country has no domestic limestone reserves. It all has to be imported. Arusha Ahmed Khan, Shun Shing Group presented a summary of the national industry at the Global Slag Conference that took place in early June 2023 in Düsseldorf. The country has two integrated cement plants and 36 grinding mills operated by 31 companies with a total capacity of 84Mt/yr. At present around 14Mt/yr of new cement grinding production capacity is planned by UK Bangla Cement, MI Cement, Confidence Cement and Dubai Bangla with commissioning dates expected from mid-2023 to mid-2025. Khan revealed that the government switched from British to European standards in the early 2000s leading to a high level (95%) of blended cements on the market. Use of slag cements has grown as more producers commission vertical roller mills and more uptake of slag and other blended cements using secondary cementitious materials (SCM) is expected in the future.

A key vulnerability for a grinding-heavy cement sector, like the one in Bangladesh, is any burden on imports such as logistic costs, currency exchange effects and government tariffs. Sure enough each of these examples has been reported locally. The government says that its proposed higher import tariff on clinker is the first such change in a decade. Cement producers have reacted, predictably, in a negative manner. Whether the authorities go ahead with the planned increase and how well the cement sector could absorb it remains to be seen. There may never be a good time for a tax rise but the BCMA has been able to present the current period as being especially bad.

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Bangladesh: The Bangladesh Cement Manufacturers Association (BCMA) has called for a 60% cut to duties on clinker imports, to US$1.84/t from US$4.61/t. The Financial Express newspaper has reported that BCMA members are struggling with high shipping costs and supply issues due to Russia’s war in Ukraine.

The Bangladesh government published plans to raise the duty on imports of clinker by 40% to US$6.46/t in its 2023 budget on 13 June 2023.

India: Shree Cement has won an auction for the Chandrapur limestone mine in Maharashtra. The mine has reserves of 50Mt of limestone, and is equipped to meet the raw materials consumption of a 1.5Mt/yr integrated cement plant. The mine occupies a 105 hectare site close to the Chandrapur and Warora railheads, 200km from Nagpur. Shree Cement will reportedly consider building new sidings to connect the quarry to the national rail network.

The Economic Times newspaper has reported that Shree Cement bid to pay taxes of 27% of the value of limestone extracted from the quarry, in addition to mining royalties. The local price of cement-grade limestone was US$5.76/t in May 2023.

Lithuania: Arturas Zaremba, the head of Akmenes Cementas, has warned that government proposals to increase the import tax on coal in 2024 and the abolition of subsidies for the fuel will affect the company. The country’s parliament is also proposing scaling the import tax based on a CO₂ scale, according to the Baltic Business Daily newspaper. Zaremba said that the cement producer uses 130,000t/yr of coal. However, it is currently investing Euro22m on an upgrade to its Akmenes integrated plant to allow it to switch to using a higher proportion of solid-recovered fuel. It currently has a 10% alternative fuels substitution rate using dried sewage sludge and tyres.

Zaremba said "There will be some impact because we will still have some of that coal left, but not as much as we would have had without the investment. I have not followed how much they plan to increase the excise duty, but we need to look into how much that would be in the financial terms. Any increase has an impact."