11 December 2012

Tanzania: Higher Taxes Cannot Be Imposed On Cement

FOR the second time in less than five years, the government has turned down an appeal for tax increase on imported construction cement.

The government's stance follows a request by the local cement manufacturers who have complained that subsidized imports were hurting their plans for growth and profitability. The Minister for Trade and Industry, Dr Abdallah Kigoda, said in Dar es Salaam last week during a function at Tanzania Portland Cement Company (TPCC) that the local manufacturers must come up with genuine production costs so that the government could help them compete fairly with importers.

The local manufacturers have always been complaining that imported cement is sold cheaply because Pakistan, India, China and even Egypt subsidize their producers heavily. It's true that the local manufacturers may have a strong argument but their claims do not have a leg to stand on, at least for now.

It should be noted any decision to impose more duties on imported cement in the free market will have long term negative effects on the struggling economy. This is because countries which will be affected by the tax increase will also impose high duties on imports from Tanzania.

The current per capita cement consumption in Tanzania is 65 kilos which is considered to be low compared to other developing countries. However, there are positive signs that the local cement manufacturing capacity, which is currently growing at an annual rate of 16 per cent, will go up sharply in the next five years due to high consumption.

Despite these positive trends, the country still faces cement production deficits. Local cement industries are capable of producing three million tonnes of cement per year, against the country's yearly demand of 2.1 million tonnes. Imports have reached 250,000 tonnes per year to bridge the deficit.

The high demand has been caused mainly by an accelerated rate of construction projects across the country such as highrise buildings, roads and bridges. This means that the local manufacturers' low capacity cannot meet the demand of cement at the moment. So, instead of imposing high taxes on imported cement, the government should focus on improving the business environment by ensuring there is reliable electric power and the transport system is improved so that they could reach remote markets.

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