Better late than never

Tractor manufacturers in Pakistan can finally heave a sigh of relief as after months of deliberations with the government the issue of GST on tractor sales has finally been resolved. The government has reduced GST on tractor sales from 16 percent to five percent and has devised a staged manner for implementing increases in GST. According to the newly-agreed plan, the tax rate will be raised by one percent per year until it reaches 16 percent in FY15. The imposition of GST brought tractor manufacturing to a halt and resulted in severe slowdown in allied industries. Compared to the sale of 32,743 units in 1HFY11 sales during the same period this year tallied just 12,665 units. The impact of this slowdown on allied industries was immense given that tractors have the highest localisation level amongst all vehicles that are made in Pakistan. The analysis of results of major tractor component makers for the 1QFY12 showed that these firms hardly managed to break even and some of them even posted losses. However, the question is: now that the GST issue is resolved would the industry be able to beat its past record of sales? Secondly and more importantly, have the policy makers learnt any lesson from the havoc they created? Unfortunately, the answer in both the cases is not that pleasing. Analysts believe that the decline in prices of farm commodities would affect agriculturists income and the impact of low incomes would definitely be reflected in tractors sales. An overnight ban on import of gas cylinders shows that government did not learn from the mistakes it committed in the past and once again rather than taking all stakeholders on board policy formulation is still knee jerk. Talking to BR Research, an industry member said that "car manufacturers have invested huge capital to make their cars CNG compatible. An abrupt policy change can result in almost 30 percent slowdown in the small and medium car sales". This would in turn mean huge losses for car companies that rely heavily on sales of smaller vehicles. Was there a lesson here? Certainly! It is that everyone, including government, is better off realising its mistakes and correcting them, even if it is late in mending its ways. Will the lesson actually be heeded? Not so sure.