The Pakistan Automotive Manufacturers Association (PAMA) on Wednesday urged the Federal Board of Revenue (FBR) in its budget proposal to reduce the rate of input tax on purchase of components, local and imported, by the tractor manufacturers to match the output rate.
Agricultural tractors are subjected to reduced rate of sales tax at the rate of 10 per cent. As against it, imported components required for manufacturing of tractors are subjected to sales tax at the rate of 17 per cent.
Also, it added, components purchased locally from vendors were also charged at the rate of 17 per cent. “Since input tax is at a much higher rate as against the output tax, refunds are consistently accruing and increasing on a regular basis,” the proposal said.
The proposal added that this would help the industry to reduce yearly refunds 400-500 million. “As sales tax on imports is directly collected by the government at the import stage and no other intermediaries are involved, therefore, it is sensible for the authorities to implement,” the proposal stated.
“The industry was already badly hit by imposition of GST in 2011 as the rise in prices badly affected the sales of tractors,” an official at PAMA said. “The industry has never been able to recover from that blow and now blockage of its huge refunds makes it almost impossible for the industry to continue smooth operations due to cash crunch,” he added.
The GST rates revisions have been a major issue for the tractor industry. The government of Pakistan for the first time in 2011 levied a GST of 17 per cent on tractor sales. On industry’s requests, this was revised to 5 per cent in next year but raised again to 10 per cent in FY13 and 17 per cent in FY14. The rate was again decreased in FY15 to 10 per cent and that rate is still applicable.
“Since the imposition of GST Pakistan witnessed negative growth in terms of sales of tractors in last five years in the world, which is quite worrisome and needs immediate attention of the authorities concerned,” he added.
Pakistan registered negative 51 per cent growth in the sales of tractors among the main players of the world in last five years. In 2010, the sales figures of tractors in the country were 70,646. This went down to 49,125 in 2011 and 64,502 in 2012. The sales figures were 41,547 in 2013 and 34,796 in 2014.
“Pakistan with 51 per cent growth was the only country with above 50 per cent negative growth,” he added. “The government should rethink about its priorities and bail the tractor industry out from the situation which is on the verge of collapse due to decline in sales,” he appealed.