Demand: Auto manufacturers urge reduction in input tax rate on tractors

Tax refund claims from the sector have surged to Rs2.4b, says PAMA

LAHORE: The Pakistan Automotive Manufacturers Association (PAMA) has requested the government to reduce the rate of input tax on tractors, citing a liquidity crunch affecting the industry as the main reason.

The rate of sales tax charged on sales of tractors is 5% while local and imported components required for manufacturing tractors are subjected to sales tax at the rate of 17%. This has resulted in accumulation of “legitimate” refund claims worth Rs2.4 billion lying with the Federal Board of Revenue (FBR), PAMA Director General Abdul Waheed Khan stated. “Due to this, the entire tractor industry is facing a liquidity crunch which is reducing foreign investors’ trust in it,” Khan warned.

“Presently, Original Equipment Manufacturers (OEMs) have to suffer substantial financial burden due to lengthy reviewing process of FBR and incomplete documents/details submitted by small vendors.

“As sales tax on imports is directly collected by the government at the import stage and no other intermediaries are involved, it is advisable for the authorities to implement this measure to avoid the hassle of refund processing,” he suggested.

He proposed eliminating the sales tax or rationalizing it on purchase of imported tractor component, arguing that there is no point of collecting sales tax at the time of import and subsequently giving refunds for the same.

“Such a change in input tax rate will eventually benefit both the farmers’ community and the entire tractor industry,” he stated.

Published in The Express Tribune, March 27^th, 2018.

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