Govt likely to withdraw GST on tractors


Government has finally decided to take a U-turn from its earlier decision of imposing 16 per cent General Sales Tax (GST) on agriculture tractors. Ministry of industries has indicated that tax collection through this measure would not exceed from Rs3.7 billion against the projected target of Rs7-8 billion during current fiscal. Official documents made available to Profit show that tractor industry paid over Rs5 billion on account of taxes last year and it was estimated that government would collect around Rs7-8 billion after imposing GST as tractors production was expected to touch 80,000 units during current fiscal year. Ministry of industries in its summary, prepared for Economic Coordination Committee (ECC) of the Cabinet, has pointed out that association of tractors manufacturers and Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM) approached the ministry and registered their protest against imposition of 16 per cent GST on tractors, as it has affected the industry adversely, besides putting additional burden of price on farmers. Summary states that in accordance with the policy laid down vide SRO 549(1)/2008, dated June 11, 2008, zero-rating of sales tax on agricultural tractors was provided with the intent to ensure availability of tractors to farmers at affordable prices. However, it had been withdrawn in March, 2011, resulting in increase of prices of agricultural tractors by around Rs90,000 to Rs200,000. Ministry indicates that increase in tractor prices has made it difficult for farmers to purchase new tractors and convert traditional farming into mechanical farming for higher yields, especially when cost of other agriculture inputs has gone up substantially. In addition, Zarai Taraqiati Bank Limited (ZTBL) has also not been extending loans for purchase of tractors since April 2010, creating another impediment for the farmers. Official documents state that production data maintained by Engineering Development Board (EDB) indicates that production of tractors since March 2011 has declined drastically from over 72,000 units to around 20,000 units per annum. Economic Survey of Pakistan also emphasises that accelerated farm mechanisation is the only tool to pace-up agriculture growth rate. It further highlights that available farm power is inadequate with only 464,000 tractors in operation. This means that per hectare horse power (hp) availability is 0.9hp only, as opposed to the required 1.4hp per hectare, as per Food and Agriculture Organisation (FAO) recommendations. Official document states that the primary objective of levying GST on agricultural tractors was to enhance revenues. However due to decline in production, tax collection will not exceed Rs3.7 billion, which means less revenue as compared to last year. In addition, due to declining trend in the production and sale of agricultural tractors from 80,000 units per annum to around 20,000 to 25,000 units, economy will suffer an additional loss of over 35 billion rupees by reduced sales. Ministry recommends that for revival of tractor industry and to provide an impetus to agriculture sector, which is the backbone of the economy with 24 per cent share of the National GDP, GST zero-rating on agriculture may be restored or deemed price (25-30 per cent of actual price) may be fixed for sales tax purposes.