GST on tractors cut to 5pc

ISLAMABAD: The Government has decided to reduce general sales tax (GST) on tractors to 5 percent, from 16 percent, aimed at bringing down tractor prices up to Rs 90,000 and extending help to the troubled local industry. However, the rate of GST will be brought to 16 percent in four to five years, official sources told Business Recorder.

The decision has been taken by a committee constituted by the Economic Coordination Committee (ECC) of the Cabinet comprising Special Assistant to the Prime Minister on Water Resources and Agriculture (Convener), Finance Secretary, Secretary Industries and Chairman FBR with the following mandate: (i) establish facts of the case, including increase in price of tractors due to imposition of sales tax and reduction in production; (ii) determine level of reduction in rate of sales tax, if required; and (iii) suggest other ways and means to help the farming community.

However, the Cabinet in its meeting on January 4, 2012, included Minister for Religious Affairs Khurshid Ahmad Shah and Minister for Kashmir Affairs Manzoor Ahmad Wattoo in the committee.

Minister for Industries Perez Elahi took special interest to resolve this issue as both the industry and the growers were suffering from 16 percent GST.

"We have decided to slash GST on tractors from 16 percent to 5 percent. However, this rate will be graduated to the same position in four to five years," said committee's convener Kamal Majid Ullah who is also Prime Minister's Advisor on Agriculture and Water. These recommendations will be submitted to the ECC in its next meeting for ratification. He said that the Zarai Taraqiati Bank (ZTBL) has also restarted loaning to farmers for tractors.

Sources in Industries Ministry told Business Recorder that previously agricultural tractors were not subject to sales tax, under the policy introduced with effect from 11th June, 2008. Consequently, agricultural tractors were available to the farming community at affordable prices.

The facility of zero-rating was, however, withdrawn in March, 2011, resulting in substantial increase in prices of agricultural tractors.

Increase in prices had made it difficult for the farmers to purchase new tractors and convert traditional farming into mechanical farming for higher yield, especially when cost of other agriculture inputs has gone up substantially. Besides, Zarai Taraqiati Bank (ZTBL) is also not extending loans for purchase of tractors since April 2010, creating another impediment for the farmers, sources added.

Ministry of Industries, sources said, has submitted the following options for consideration of the ECC: (i) sales tax zero-rating on agricultural tractors may be restored; or (ii) deemed price (say 25-30 percent of the actual price) may be fixed for sales tax purposes, as has been done in the case of sugar and fertilizers; and/or (iii) levy of sales tax may be phased in three to four years instead of imposition in one go i.e. @ 4 percent per year.

Sources said those opposed to this proposal argued in the ECC meeting that due to various measures taken by the Government, including substantial increase in support prices of various crops, income level of farmers had improved manifold and they were now in a position to buy tractors.

Government protection to tractor industry, they maintained, had not improved the quality of tractors. The need to encourage investors for setting up of new tractor manufacturing/assembling units to overcome the shortage of tractors and to stabilise their prices was also highlighted.

Some members argued that the Government needs to extend loan facility to farmers through ZTBL for purchasing agricultural tractors. Overwhelming view was that sales tax on agricultural tractors should either be removed altogether or a staggered reduction may be implemented in three to four years. It was also stated that farmers in rural areas are also agitating against Government decision to impose sales tax on agricultural tractors.

It was also explained to the ECC that this was not the issue of tractor industry; rather it was the issue of the entire taxation system. Tractor industry gets input adjustment and final rate of sales tax comes to 11 percent.

A number of structural changes have been made in the taxation system, which is now showing positive results. Removal of sales tax from the tractor industry is likely to offset the positive results of structural changes introduced by the Government. However, if any segment of economy needs Government protection, it can be made available through subsidies. -MUSHTAQ GHUMMAN