Tractor makers demand cut in import duty on raw materials

KARACHI: Tractor manufacturers have urged the government to tax the raw material imports at zero-rate or maximum five percent in line with the CBU import.

Shahid Hussain, CEO and managing director of Al-Ghazi Tractors, said the CBU import of tractors were allowed at five percent import duty, while raw materials import for local tractor production is subject to 17 percent general sales tax (GST) and 10 percent import duty.

“This is not logical, but quite contrary to the cause of localisation as well.”

“The local industry, on the other hand, is often accused of being protected, while the situation is quite contrary.”

The tractor manufacturers welcomed the government’s decision to reduce general sales tax on tractors.

"The government’s decision to reduce GST to five percent on tractors was a long outstanding demand of the tractor industry and farmers."

"This reduction will go a long way in reviving the tractor industry; thus, helping the farmers through increase in farm mechanisation,” Hussain said.

He said that the industry is expecting brighter future due to the government’s good decision of reducing sales tax, as it would spur growth and stabilise the ailing industry through increase in sales, securing thousands of jobs.

“Since the imposition of GST, Pakistan witnessed a negative growth in terms of sales of tractors in the last five years.”

However, there still is an anomaly between input tax and output tax.

“The new sales tax, ie, reduced levy would create definite and serious cash flow problems for the manufacturers.”

“Agricultural tractors will now be subject to reduced rate of sales tax at the rate of five percent, while contrary to it, imported and locally produced components required for manufacturing of tractors are subject to sales tax at the rate of 17 percent,” he added.

Since input tax is obviously and visibly levied at a much higher rate as against the output tax, considerable refunds from government are consistently accruing and increasing on a regular basis.

The Al-Ghazi Tractors CEO said that in its budget proposal the local tractor industry had suggested reduction in the rate of input tax on the purchase of components (local and imported) by tractor manufacturers to match the output rate.

“The proposal, if implemented, would help the cash-starved industry reduce yearly refunds of up to Rs700 million, which would enable the manufacturers to innovate further and provide more useful and cost-efficient options to Pakistani farmers,” he added.