KARACHI: Pakistan Automotive Manufacturers Association (Pama) has urged the government to reduce the rate of input tax on tractors which is resulting in liquidity crunch.

The rate of sales tax charged on tractor sales is five per cent, as against the components, purchased locally as well as imported, required to manufacture tractors are subjected to 17pc sales tax.

Pama Director General Abdul Waheed Khan said this has resulted in accumulation of legitimate refunds with Federal Board of Revenue (FBR), which currently stands at Rs2.4 billion approximately for the industry.

Due to this, the entire tractor industry is facing a liquidity crunch affecting the trust of foreign investors/shareholders, he added.

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

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, avoiding the hassle of refund processing,” the director suggested.

In the pre-budget proposal, Khan suggested that sales tax be eliminated or rationalised on purchase of imported tractor component as there is no point of collection of sales tax by the government at the time of import and subsequently giving refund for the same.

Such a change in input tax rate would eventually benefit not only farmers but the entire tractor industry, he added.

Tractor sales soared to 44,627 units in July-February 2017-18 from 31,970 units in the same period last fiscal year.

Published in Dawn, March 27th, 2018