Our Bureau

Chennai, Dec. 27

THE Tamil Nadu Government is all set to abolish differential sales tax on cement. The Government had introduced the differential tax rates in 2002-03 to rein in cement prices.

According to sources, the move comes following representation from the industry that pointed to the 12.5 per cent tax rate levied in neighbouring States, which have all switched over to the VAT regime.

In the 2002-03 Budget, the Tamil Nadu Government decided to levy sales tax of 24 per cent for ordinary Portland cement and Portland Pozzolona cement exceeding selling price of Rs 145 and Rs 135 per 50-kg bag respectively. This selling price was to include sales tax.

The tax on second and subsequent sales for these categories of cement was fixed at 5 per cent. Cement sold below this price would be charged at 16 per cent sales tax.The Government's move then was aimed at controlling cement prices, which had reached levels of Rs 190 a bag.

According to reliable sources, the latest decision to reduce the sales tax to 16 per cent is because the Government is worried that there will be diversion of stocks as the neighbouring States charge a lower rate.

A Government notification on the new sales tax structure is awaited, according to the sources.

Cement prices are now ruling at Rs 165-170 a bag and there is expectation in the market that prices will go up from mid-January once demand picks up.

The cement companies were expecting sales to pick up from mid-December itself, but that has not happened because of the rains.

They anticipate a surge in demand from next month when more infrastructure and building projects get off the ground.

As it is, cement companies are working to almost full clinker capacity, according to industry sources.

(This article was published in the Business Line print edition dated December 28, 2005)
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