Auto parts makers demand release of tax refunds

Lament tractor industry is on verge of closure due to prolonged delay

LAHORE:

Pakistan Association of Automotive Parts and Accessories Manufacturers (Paapam) has announced that the tractor industry is on the brink of a complete shutdown due to prolonged delay in releasing general sales tax (GST) refunds by the Federal Board of Revenue (FBR) and the recent implementation of a new GST regime under Statutory Regulatory Order (SRO) 563.

"This situation has created a cash flow crisis across the entire supply chain, affecting everything from raw material suppliers to small and medium-sized enterprises (SMEs) in the engineering sector," the association said in a statement.

The problem has escalated to a point where Paapam has decided to approach the prime minister directly, as previous attempts to resolve the matter with finance and industries ministries proved unsuccessful, it said.

"It seems that the FBR has more powers than the government as its policies are holding the entire engineering chain hostage," Paapam Chairman Abdur Rehman remarked.

He lamented that they were in dire straits with the GST refunds of tractor assemblers being withheld for years and the new SRO 563 further complicating matters.

The chairman complained that the entire supply chain – from steel suppliers to the vast engineering SME base that contributes to the production of world's most affordable tractors – was at a complete standstill.

He cautioned that the FBR's actions were threatening not only jobs but also the tax revenue, import substitution and export of tractors and parts.

Commenting on the exacerbating problems, Paapam Senior Vice Chairman Mumshad Ali revealed that at least 250 direct suppliers to two major tractor assemblers – Millat Tractors and Al-Ghazi Tractors – had halted operations due to delayed payments for parts.

"Assemblers are unable to pay their suppliers, which has forced vendors to shut down operations. If this continues, tractor assemblers too will be forced to cease operations within a week," he warned.

According to the industry, the root of the problem lies in SRO 563, which governs GST refunds to tractor assemblers. Prior to the year 2022, tax refunds were issued under SRO 363, but the new SRO 563 has created complications by limiting refunds to farmer-buyers only.

They said there was currently no mechanism to distinguish between farmer and non-farmer buyers, leading to billions of rupees in refunds being withheld by the FBR. Additionally, older refunds under SRO 363 also remain unpaid, along with penalties, pushing assemblers to seek legal recourse.

Without refunds, the assemblers are incurring losses on each tractor sold, forcing them to rely on bank borrowing, which has now hit the limit. As a result, they are no longer accepting fresh bookings for tractors, except for those financed through banks.

This cash crunch has caused a months-long delay in payments to suppliers, a situation that the SME sector cannot sustain.

In light of these developments, Paapam executive committee has decided to seek the PM's intervention.