ISLAMABAD: The Finance Ministry and Federal Board of Revenue (FBR) have reportedly refused to help out local tractor industry. However, the Ministry of National Food Security and Research is insisting on a reduction in General Sales Tax (GST) from 16 percent to 10 percent. The government levied 17 percent sales tax on tractors in March 2011 which was reduced to 16 percent in budget 2011-12.
Subsequently, the ECC of the Cabinet while considering a summary submitted by the Ministry of Industries and Production (MoI&P) decided to reduce sales tax to 5 percent subject to the condition that “it shall be gradually enhanced on yearly basis to reach the maximum level i.e the prevailing rate of sales tax.” Accordingly, Revenue Division issued a notification on February 2, 2012.
Pakistan Association of Automotive Parts & Accessories Manufacturers (PAAPAM) approached the Ministry of Industries, highlighting that due to the levy of sales tax, the production of tractors had declined.
The production declined to 48,898 during 2011-12 (levy of 16% sales tax and its reduction to 5% during said period) and recovered a bit to 51,977 with a 10% sales tax in 2012-13. Low production volumes have adverse effect on the auto parts manufacturers and other allied businesses.
With the increase in sales tax from 10% to 16% with effect from January 2014 onwards, an approximate increase of Rs40,000 has been observed in price of 50 HP tractors. Approximate increase ranging from Rs42,000 to Rs60,000 has been seen in other variants of tractors namely 60 HP and 75 HP. Similarly, in 85 HP category, the approximate increase of Rs 92,000 in price due to increase in GST has been witnessed. The sources said it has been observed that increase in prices has resulted in reduced sales. In addition, ZTBL has significantly reduced extending loans for the purchase of tractors since April 2010. Tractors financed by ZTBL declined from 24,596 units in 2009 to 9,212 units in 2013.
Accordingly, for the revival of tractor industry and giving impetus to the agriculture sector, the MoI&P has proposed that instead of increasing sales tax to 16 percent from January 1, 2014 the sales tax at 10% may be maintained for 2014 and 2015 and ZTBL may be directed to enhance their share of loans for agriculture tractors.
MoI&P circulated the summary to FBR, Finance Division and Ministry of National Food Security and Research for comments. FBR has not supported the proposal on grounds that a gradual increase in the rate of sales tax from 5% to 16% was made in the light of ECC decision dated 20-1-2012. Finance Division has not supported the proposal on grounds that ZTBL is not in a position to further enhance its share of loans for agricultural tractors due to resource constraints.
