The tractor industry is facing serious financial challenges as the Federal Board of Revenue (FBR) has not been settling pending sales tax refunds amounting to Rs 3 billion a long time. According to Abdul Waheed Director General Pakistan Automotive Manufacturers Association (PAMA), the tractor industry's pending sales tax refunds were hovering around Rs 3 billion resulting in huge operational challenges as the cost of doing- business is increasing day-by-day with increasing refunds.
He said that with the recent reduction in sales tax rate on supply of tractors, the industry was charging sales tax at the rate of 5 per cent on supply of tractors as against the input tax on purchases of components @ 17 per cent, both at local as well as on imports.
Since input tax is at a much higher rate as against the output tax, the refunds are consistently accruing and increasing on a regular basis, he said and added that the burden of such undue cost would be borne by the end consumer, ie farmer who was already facing challenges on account of depressed commodities prices and increased input cost. He feared that this burden was also nullifying the various supportive initiatives taken by the government to improve the financial health of farmers.
Moreover, he suggested that the government should reduce the rate of input tax on purchase of imported components by tractor manufacturers to match the reduced rate, ie 5 per cent to minimise the accumulation of refunds. This will help the industry to reduce yearly refunds by approximately 700 million. As sales tax on imports is directly collected by the government at the import stage and no other intermediaries are involved.
Therefore it is advisable for the authorities to implement it and avoid undue hassle of refund processing. However, the government is not heeding on the plea of the industry.
He said that the STARR system of the FBR was passing through a development phase since July 2016.
Accordingly, no refund claims are being accepted manually. The relevant local tax office is not processing refunds due to technical issues and helpless in this regard. This delay is creating a cloud of ambiguities for the taxpayers with respect to their huge amount of refunds accumulating on monthly basis, DG PAMA mentioned.
He strongly urged the finance minister to take immediate measures for the release of accumulated refunds of tractor industry on priority basis to avoid financial collapse and added that the FBR should move on swiftly for completion of up-gradation exercise otherwise manual practice of accepting refunds should be continued till the successful launch of auto refund plan. He hoped that these remedial steps were imminent at this stage to maintain the confidence level of foreign investors on country's regulatory bodies and business environment.
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