LAHORE: Pakistan Association of Automotive Parts and Accessories Manufacturers has appreciated the Punjab’s Chief Minister, Shahbaz Sharif, for announcing 10,000 tractors scheme on subsidized rates to small farmers, but suggested the government to divert whole subsidy to the overall production capacity of the industry for better results.
PAAPAM Senior Vice Chairman, Mumshad Ali, said that the government had announced to provide a Rs. 200,000 subsidy per tractor in the next fiscal year. The farmers with landholdings of 12.5 acre or less would be eligible for purchase of tractor under the program. “Such tractor schemes of Punjab as well as Sindh’s governments to provide cash subsidies to farmers create an erratic demand in the market, resulting into a vicious circle of boom and bust in tractor industry.” Partial financing creates distortion in the market and establishes a parallel black market, disturbing the whole production sequence.
“These schemes, with government’s contribution amounting to billions of rupees, were misused at the same time by the investors while availing cash subsidy and buying tractors under provincial schemes and selling them in the market at a price lower than the price being offered by the tractor manufacturers thereby affecting the business of both tractor manufacturers and the auto part makers.” The government should divert funds of tractor schemes to the total production capacity of the country, giving subsidy on each tractor to avoid the misuse of scheme. In this way, every farmer will find the tractor easily at lower prices, eliminating corruption element from tractor schemes, besides bringing consistency in tractors production, which has been suffering from ferocious cycle of boom and bust for a long time.
Mumshad Ali argued that increase in prices of tractors due to 17% sales tax in last regime made it difficult for farmers to purchase new tractors especially in view of reduction in loans from ZTBL, resulting in low production levels of the tractor manufacturing. But the present government’s decision to reduce it from 17% to 10% from July 1 last year, has gone a long way in boosting sales. PAAPAM SVC observed that industry expects the government will keep the tax regime stable for the tractor industry to enable it for long-term planning. Uncertainty and confusion always hurt the industry as we have seen in the last few years, he noted.
He was also critical of the previous government’s policy permitting zero-rated import of the built-up tractors. It was a bad policy for the local vending industry that the present government has reversed. In federal budget FY15, the government announced reduction in General Sales Tax (GST) and increased agri-credit loan target from Rs380 billion to Rs500b. Both these measures provided the much needed growth, he added. Mumshad said that countries including India, Thailand, Malaysia and even Japan protect their local industry as they have imposed heavy taxes and penalties to discourage import.
