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Confusion over GST reduction on tractors hurting industry: LCCI

Confusion over GST reduction on tractors hurting industry: LCCI

LAHORE: Lahore Chamber of Commerce and Industry has asked the government to clarify the confusion over reduction in General Sales Tax as early as possible because high tractor prices along with confusion over the reduction of GST on tractors has had a negative impact on the tractor industry which is already finding it hard to sell its tractors in the local market.

LCCI President Engineer Sohail Lashari said this while talking to a delegation of tractor parts manufacturers led by Engineer Mumshad Ali here at the Lahore Chamber of Commerce and Industry.

The delegation briefed the LCCI President on the past and present tractor sales volumes and the problems being faced by the tractor parts vendors. They said that the tractor industry has seen a drop in production by 50 per cent in the recent 2 years, and many part makers are considering closing down their units or changing their facilities for the production of other engineering goods. Inconsistent and low productions along with high costs of production are the main reasons forcing tractor vendors to close their factories.

They were of the view that the tractor sales are expected to be below 30,000 unit’s mark this year compared to 50,000 units last year and 70,000 units in the year before. As tractor productions drop so does revenue collection from the farmers, assemblers and parts manufacturers. At 70,000 annual tractors production under the 5 per cent GST regime in the year 2011-12 the revenue collection from the industry and farmer was approximately Rs 7.3 billion. This volume dropped to 50,000 units in the year 2012-13 under the 10% GST regime and the revenue collection from this sector stood at Rs 6.8 billion.  This year government will be collecting around Rs 5 billion from this sector under the 16% GST regime with annual tractors production expected not to exceed 30,000 units. This will have negative impact on the rural economy and unemployment will be in addition to this.

Engineer Mumshad Ali criticized the government for ignoring one basic fact about the tractor market, which is the buying power of the Pakistani farmer. Currently the Pakistani farmer is paying over Rs 100,000 as GST on a 50 Hp tractor while this amount is over Rs 150,000 for 85 Hp tractors. The tractors are subsidized not just regionally but globally. Ali added that Pakistan currently produces the cheapest tractor in the world but this advantage has been offset by the high GST rate and now the industry has almost closed due to government apathy. Hundreds of tractor parts producing factories in and around Lahore and across the country will be shutting down production due to tractor assembly plant closures rendering a massive surge in unemployment. This industry is estimated to employ over 300,000 people in the total supply chain.

There seems to be a discord in the government in dealing with this sector. On one hand GST rate has increased by 6% to the current 16% from the previous 10%, while on the other hand provincial and federal subsidy schemes have been withdrawn, namely Benazir tractor scheme of the Federal Government, Green Tractor scheme of the Punjab Government and Sindh tractor scheme of the Government of Sindh. Without government support to agriculture this industry with Rs 40 billion contribution to the GNP has dark days ahead.

On the revival of the tractor industry, Engineer Mumshad Ali said, a national tractor scheme should be launched with an aim to provide 100,000 tractors annually for five years at Rs 100,000 subsidy; Rs 10 billion annual fund be created from the taxes collected from the industry and farmers; ZTBL network be utilized for the disbursement purpose; while the subsidy to be provided to only those farmers who have an NTN number. This will also help document the agricultural economy of the country whose contribution to the treasury falls short of its actual pie size in the national economy.

This will provide stable demand to the tractor industry by making the tractor more affordable for the farmers. This will not only create employment in urban and rural areas, but also give boost to the agricultural economy and help enhance government’s revenue and tax net.