KARACHI: The closure of production activities by Millat Tractors Ltd (MTL) until further notice is forcing parts vendors to shut down or slow down their operations, which may result in workers’ retrenchment.

Besides, MTL assembled and sold less than 1,000 units in August due to the need for clarity on the mechanism for GST refunds after the levy of 10 per cent GST on tractor sales from July 1 2024, an official in MTL said.

The Federal Board of Revenue (FBR) has not yet devised a mechanism to distinguish between a farmer from whom 10pc GST is to be collected and a non-farmer tractor buyer for whom 18pc GST is to be charged.

Bolan Castings Ltd (BCL), an auto parts maker, said in a stock filing on Friday that the company is facing a drop in sales due to a drastic fall in customer orders. Delays in payments from its main customers are also causing severe financial strain.

As a result, the BCL management has decided to halt the production activities from August 26 till further notice. BCL had also kept production activities halted from Aug 12 to 16 for the same reasons.

Pakistan Association of Automotive Parts and Accessories Manufacturers (Paapam) chairman Abdul Rehman Aizaz told Dawn that the situation is critical in the vending units.

Most Lahore-based tractor vendors have either closed down or curtailed production. Millat Tractors has closed down, so vendors cannot continue production. He feared that “retrenchment of workers might start soon if the FBR does nothing in notifying mechanism for sales tax refunds”.

Mr Aizaz said if the government wants to provide tax breaks to farmers by collecting 10pc GST instead of 18pc, they shall refund directly to farmers instead of asking the industry to give tax first and then ask for a refund and that too without notifying any mechanism.

For years, multi-billion GST refunds have stuck up with the FBR, resulting in cash starvation for the entire supply chain of tractor manufacturing.

Pak Suzuki Motor Company Ltd (PSMCL) has also remained shut from August 1 to 23 due to parts shortage.

Mr Aizaz claimed that car vendors have been working with 25-30pc capacity utilisation for the last two years. To give breathing space, the limitation of car financing to a maximum of Rs3 million shall be withdrawn immediately. Car sales may revive with the expectation of a further drop in interest rate, but a financing limit of Rs3m is a big hurdle.

The Paapam chief said that regulatory duty (RD) on the import of used cars below 1,300cc should be imposed to protect the local industrial growth.

In the budget for FY25, the government has imposed RD on cars above 1,300c even though 65pc of imported used cars are below 1,300cc.

Published in Dawn, August 24th, 2024