Islamabad, Aug 28: With the recent implementation of a 10 percent sales tax, Pakistan’s tractor industry is in danger of collapsing. The industry has issued a statement stating that it is facing an unprecedented crisis that could result in its total closure, which would negatively impact 200,000 workers and individuals who are directly employed in the tractor sector, as well as the livelihoods of 500,000 families.
Over the last 70 years, the tractor industry has expanded with Pakistan, helping the country’s more than 200 parts manufacturers who serve as local vendors. The tractor industry has created jobs, boosted the economy, and brought in over $50 million in export revenue annually. Its affordable and high-quality tractors are known throughout the world, saving millions of rupees annually and saving valuable foreign exchange.
The introduction of a 10% sales tax on tractors in June 2024 marked the start of the crisis. The industry, which was previously free from sales tax, is now forced to deal with the hassles and delays of implementing a return system.
Concerns have been raised by the Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM), which has declared that the industry is in danger of shutting down entirely as a result of the Federal Board of Revenue’s (FBR) protracted delay in releasing refunds for General Sales Tax (GST) and the introduction of a new GST regime under Statutory Regulatory Order (SRO) 563.
Nearly 250 direct suppliers to the nation’s largest tractor assemblers have already stopped operations, according to PAAPAM, as a result of unpaid invoices for parts they have provided. Statutory Regulatory Order (SRO) 563, which controls GST refunds to tractor assemblers, is the main source of contention. The fact that this new rule, which supersedes the old SRO 363, restricts refunds to farmer buyers alone has created issues.
The Federal Board of Revenue (FBR) has withheld refunds totaling billions of rupees due to the absence of a method to differentiate between buyer who is not a farmer and buyer who is one.
The sector is additionally saddled by about Rs. 10 billion in legacy refunds under SRO 363 that have not been paid since April 2020. The industry as a whole is in limbo due to the unsolved issue; assemblers are losing money on every tractor sold and are dependent on bank loans to survive. Small and medium-sized businesses (SMEs) in the engineering sector as well as suppliers of raw materials have been impacted by this financial hardship, which has spread across the supply chain.
The whole nation’s engineering base appears to be under the control of the FBR, which seems to have more authority than the government itself. The situation is grave since tractor assemblers have had their GST returns withheld for years, and SRO 563 has made things much more difficult.
The agricultural sector in Pakistan, which employs 37.4% of the labor force and generates around 23% of the country’s GDP, may suffer greatly from the possible closure of this business. Given that agriculture accounts for over 70% of Pakistan’s exports, the effects on the country’s economy might be disastrous. Any disturbance in this sector might have broad ramifications, impacting not just the nation’s economy but also its food security.
The government needs to take immediate action because the lives of half a million families are in jeopardy. In order to ensure that farmers receive the full advantages of the decreased tax, the industry is calling for a prompt and effective refund process. This will help to stabilize the sector and prevent a total shutdown.
