Two units closed: raise in GST hits tractor industry hard: PIAF

The country may face a low-yield phenomenon in today’s high tech world only because of the increase in the rate of general sales tax (GST) on tractors from 10 percent to 17 percent that has not only dropped the sale of tractors but also caused closure of large tractor manufacturing units. 

Pakistan Industrial and Traders Associations Front (PIAF) Chairman Malik Tahir Javaid in a statement on Monday said it was very unfortunate that the tractor industry was running at 30 percent of its installed capacity due to sharp drop in sales and sudden closure of two tractor manufacturing giants Millat Tractors and al-Ghazi Tractors. The PIAF Chairman said the policy makers must have the vision to gauge the impact of any raise in taxes on farming machinery but it seemed that no such exercise was carried out before jacking up rate of GST on tractors resultantly the prices of a product that was the cheapest in the entire world also surged. Pakistan was the only country that was the producer of the cheapest tractors before raise in GST. 

Tahir said the industry was under a zero-tax regime till 2008 and the only reason was to increase the agricultural yield in the country. The tractor assemblers and their 300 plus vendors fear a severe drop in sales as a result of massive hike in GST from 1st January 2014. He said that 17 percent GST to be paid by the country’s farmers will further curtail their ability to purchase tractors. Despite producing the cheapest tractor in the world, the Pakistani farmer is still not able to afford a tractor and requires support in the form of subsidies and loans from the government to purchase a tractor. With no subsidies on tractors in the current federal and provincial budgets, meager loaning by Zarai Taraqiati Bank Limited (ZTBL) in the absence of a Federal Agricultural Ministry and GST set to go to 17 per cent under IMF pressure, is adding up to massive drop in tractor sales. 

Pakistan lags far behind India in crop yield, crop intensity and number of tractors per hectare. Pakistan today needs 800,000 more tractors to match India in per hectare tractor population. He said that an industry with installed capacity of 100,000 units per annum is expected to close the current financial year with less than 30,000 units. 

This means 70 per cent drop in revenues for the FBR from this industry in the FY 2013-14. In sharp contrast India with zero per cent central GST, will close this year with the highest ever production of over 600,000 tractors, ie 20 times higher than Pakistan, he said. 

The PIAF Chairman said the drop in tractor sales means unemployment for thousands of skilled workers who work in hundreds of factories producing tractor parts for the tractor assembly plants. Employment in rural Pakistan will also be curtailed, as tractor is a major source of employment generation in the form of drivers, mechanics, and spare parts/lubricant suppliers, he added. 

An industry that had crossed 70,000 units production for two consecutive years ie 2009-10, 2010-11, is bracing for below 30,000 units production this year. The worst hit will be Punjab where three operational assembly plants are located along with the major tractor parts manufacturing cluster located in and around Lahore, he maintained. 

Copyright Business Recorder, 2014

Muhammad Ramzan Rafique
Muhammad Ramzan Rafique

I am from a small town Chichawatni, Sahiwal, Punjab , Pakistan, studied from University of Agriculture Faisalabad, on my mission to explore world I am in Denmark these days..

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