Budget proposals: PAMA wants reduction of input tax rate

Blockage of refunds is hindering smooth operation of the tractor industry, states association

KARACHI: The Pakistan Automotive Manufacturers Association (Pama) has urged the Federal Board of Revenue (FBR) to reduce the rate of input tax on the purchase of components, local and imported, for the tractor industry to match the output rate.

These suggestions were part of proposals for the upcoming budget. According to Pama, this will help the industry reduce yearly refunds amounting to Rs400-500 million.

Agricultural tractors are subjected to reduced rate of sales tax at the rate of 10%. Imported components for tractor manufacturing are subjected to sales tax at the rate of 17%.



Also, components purchased locally from vendors are charged at the rate of 17%. “Since input tax is at a much higher rate as against the output tax, refunds are consistently accruing and increasing on a regular basis,” stated the press release.

Elaborating on the suggestion, the release stated, “As sales tax on imports is directly collected by the government at the import stage and no other intermediaries are involved, therefore it is sensible for the authorities to implement.”

After the imposition of General Sales Tax (GST) in 2011 the industry faced a setback as rise in prices affected the sales of tractors.

GST rate revisions have been a major issue for the tractor industry since its imposition. The government levied GST of 17% on tractor sales, which was revised to 5% next year at the industry’s request. However, it was raised to 10% in fiscal year 2012-13 and 17% the next fiscal year. The rate was decreased to 10% in 2014-15.

“Since the imposition of GST, Pakistan witnessed negative growth in terms of sales of tractors in last five years, which is quite worrisome and needs immediate attention of the authorities concerned,” the release stated.

Pakistan registered a 51% decline in the sales of tractors in the last five years. In 2010, the sales figure of tractors in the country was recorded at 70,646 units. This went down to 49,125 units in 2011, 64,502 units in 2012, 41,547 units in 2013 and just 34,796 units in 2014.

Published in The Express Tribune, April 14^th,  2016.

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