KARACHI: Automakers urged the government to clear more than five billion rupees of stuck refunds to tractor manufacturers.
Pakistan Automotive Manufacturers Association (Pama) Director General Abdul Waheed said the Federal Boar of Revenue has been holding back huge refunds of tractor manufacturers since April.
“This huge amount has created a liquidity crunch among the tractor companies,” Waheed said in a letter to the Finance Minister Asad Umar. “The root cause of this continuous accrual of sales tax refunds is an anomaly that sales tax of 17 percent is being charged on imported tractor parts at import stage, which always results in refunds later as sales tax on tractors is five percent, thus creating huge financial issue.”
The Pakistan Automotive Manufacturers Association’s official said this has resulted in slowdown of production activities in the two largest tractor manufacturing plants of the country and the delay in delivery is causing distress among the farmers.
Waheed told the finance minister that the association’s member companies are quoted on Pakistan Stock Exchange, with shares owned by foreign direct investors and holding companies like Al-Futtaim Industries Company LLC, UAE, International Fund Manager and the holding CNH Global NV, Netherlands.
“The situation is causing unease among the foreign investors and shareholders.” Waheed said Pama has been pointing out the anomaly since long. He urged the finance minister to immediately settle pending refund claims and also to do away with the sales tax on tractor parts at the import stage, “which in any case, is always supposed to be refunded, therefore, there is no point in collecting the same”.
In April, government announced plan to withdraw five percent sales tax on locally-manufactured tractors and to eliminate subsidies given to farmers on buying of fertilisers. Sales of tractors fell 19 percent to 7,913 units in the first two months of the current fiscal year of 2018/19. Main local tractors makers in the country include Millat, Al-Ghazi Tractors and Orient Automotive Industries.
Millat Tractors, which sells Massey Ferguson tractors, has been operating at overcapacity over the past one year, while the second biggest local manufacturer Al-Ghazi Tractor that sells Fiat tractors is working slightly under capacity.