With the imposition of 10% sales tax on tractors in this year’s Finance Act, the tractor industry has again been pushed into a regime where Sales Tax refunds will be generated each month. The industry requested FBR on multiple occasions to clarify the applicability of the reduced rate of sales tax and the mechanism for processing the refunds generated due to reduced rate of 10%. However, despite many follow ups there has been no official response from FBR.
Prior to tractors being exempted from sales tax from July 2022, FBR had notified stringent conditions on the application of the reduced tax related to the usage of the tractor through SRO for refund processing. Despite all the efforts of the industry, those conditions could not be met to the satisfaction of FBR. All claims of refunds related to reduced rate of tax were rejected and it was adjudged, illegally, by FBR that full rate of 18% should have been applied.
It is not possible for the industry to determine usage of tractor at the time of sales and in my opinion any conditions related to usage should be removed. Based on this experience, it would be impossible to apply the reduced rate of sales tax unless the required mechanism is well defined and known in advance or the required documents are pre-approved by FBR in this respect.
It is with this background that Millat Tractors Limited has reluctantly decided to suspend the sales of tractors to all customers except those customers qualifying for agricultural loans. Due to this restriction, the production has been reduced to a minimum. Due to this prolonged suspension of sales the CBU inventory has piled up and working capital has been squeezed to the extent that it is becoming difficult to continue Production. Without the required clarification from FBR, Millat may soon have to stop production operations and close the plant.
Millat Tractors appreciates and supports the government’s decision to apply reduced rate of sales tax on tractors in the Finance Bill 2024 in order to reduce input costs of the agriculture sector. However, the practical application of this step can only start when FBR notifies the clarification regarding the conditions of sale. Normal Sales will Be resumed once the mechanism of refund is issued and clarified by FBR and the user related conditions are removed.
The writer is an Entrepreneur & Agriculturist.
