Islamabad, Aug 9: Due to unpaid invoices for parts received, about 250 direct suppliers to the nation’s two largest tractor assemblers, Millat Tractors and Al-Ghazi Tractors, have ceased business, an official of the Pakistan Automotive Parts and Accessories Manufacturers (Paapam) stated on Thursday. Senior vice chairman of the Paapam, Mumshad Ali, stated that the tractor industry was in danger of collapsing due to the Federal Board of Revenue’s (FBR) refusal to reimburse general sales tax (GST) and the new GST regime’s inability to facilitate commercial transactions.
According to him, this has led to a serious cash flow problem that has affected every link in the supply chain, from raw material suppliers to small and medium-sized engineering firms (SMEs).Vendors are forced to close their doors because assemblers are unable to pay their suppliers. Tractor assemblers will have to stop working in a week if this situation continues, Mr. Mumshad stated.
The SRO 563, which controls GST refunds to tractor assemblers, is the source of the issue. Refunds were made under SRO 363 prior to 2022; however, SRO 563 has created more work by restricting refunds to farmer buyers only. Currently, there is no system in place to differentiate between those who are farmers and those who are not, which causes FBR to withhold reimbursements totaling billions of rupees.
Additionally, he said, unpaid penalties and overdue reimbursements under SRO 363 force assemblers to pursue legal action. The tractor sector is in a state of uncertainty due to this unsolved issue. Assemblers are losing money on every tractor sold without these reimbursements, which forces them to rely on bank loans. They are therefore no longer taking new reservations or billing tractors, with the exception of those who are bank-financed. The SME sector cannot continue the months-long delays in supplier payments brought on by this liquidity shortage, Mumshad thought.
PM’s support
According to Paapam Chairman Abdur Rehman Aizaz, the problem has gotten so bad that Paapam has decided to ask the prime minister for help. Previous attempts to work out a solution with the ministries of industry and finance have failed. He claimed that the FBR was holding the nation’s whole engineering base captive and appeared to have more authority than the government. “The situation is dire because SRO 563 has made things even more complicated and GST refunds have been withheld from tractor assemblers for years.”
According to Mr. Aizaz, there is a complete halt in the supply chain, extending from steel suppliers to the large base of engineering SME’s. The FBR’s activities endanger tax income, import substitution, the export of tractors, and parts.As a result of the decision to levy a 10% sales tax on tractor sales, Millat Tractors Limited (MTL) informed the Finance Ministry last month that the company has had to cease operations as of July 1 because the FBR has not yet announced the procedure for processing sales tax refunds.
Due to this, MTL was unable to invoice a single tractor or accept a single order, which resulted in large financial losses for the business. According to the law, if the excess input tax is not adjusted, a refund of the excess unadjusted input tax related to supply may be requested. In order to properly transfer the gain to farmers, a 10 percent sales tax will need to be applied.The tractor sector experienced significant financial losses throughout the refund processing procedure since the FBR had not disclosed the methodology. Refunds of more than Rs. 10 billion, according to the MTL, have been delayed since April 2020.
