Govt announces Rs1.5bln sales tax subsidy on local tractors

ISLAMABAD: The government on Saturday unveiled Rs1.5 billion sales tax subsidy on locally-manufactured tractors under over a trillion rupees agriculture package announced to revive the economically important sector.

The government approved withdrawal of 5 percent sales tax on locally-manufactured tractors for one year. At present, 5 percent sales tax is applied on sale of each tractor, which in rupee term comes around at Rs60,000 per tractor.

The sales tax exemption would cost the government an estimated Rs1.5 billion, according to the ministry of food security.

The government in May announced a fiscal package of over Rs1.2 trillion in the wake of COVID-19 pandemic. Economic Coordination Committee of the cabinet division approved the package proposals.

Of this package, Rs50 billion was earmarked for relief to agriculture sector that contributes 18.9 percent to GDP and absorbs 42.3 percent of labour force. The package also includes Rs6.861 billion for provision of financial relief in terms of markup subsidy on bank’s loans to farmers.

The food ministry said the sales tax relief was announced to promote mechanisation in agriculture sector to enhance per-acre crop yield.

Pakistan produces tractors with a variety of working capacities in technical collaboration with foreign manufacturers, including New Holland Tractors and Massey Ferguson. Two main manufacturing units –Massey Ferguson and Al-Ghazi – sold 41,000 units last year.

Farm tractors’ production and sales fell 35 percent each to 32,608 and 32,727 units in FY2020. The industry sold 50,405 units in FY2018/19. The industry recorded the decade-high sales of 70,887 tractors in FY2017/18.

Mostly, tractor manufacturers operate at less than 50 percent of their combined capacity due to sluggish demand even before the pandemic, which has further damaged the industry.

Sales tax subsidy on tractors is for one year and under the implementation mechanism. The Federal Board of Revenue is to notify the tax exemption.

The food security ministry is tasked to confirm proper utilisation of the subsidy through forensic audit on quarterly basis.

The local tractor industry has achieved 95 percent localisation and prices are cheaper compared to the world – including China by a big margin. Pakistan also exports tractors and its parts to Europe and Africa.

Amid all its efforts to modernise agriculture and promote farm mechanisation, the local tractor industry has been going through its worst ever period in terms of sales and production for the last few years.