LAHORE - Tractors industry’s outstanding refunds have reached the level of Rs3 billion, resulting in huge operational challenges, as the cost of doing business is increasing day by day with increasing refunds.

Following the recent reduction in sales tax rate on supply of tractors, manufacturers are charging sales tax at the rate of 5% on supply of tractors as against the input tax on purchases of components at 17%, both at local as well as on imports. Since input tax is at a much higher rate as against the output tax, refunds are consistently accruing and increasing on a regular basis.

Ultimately the burden of such undue cost will be borne by the end consumer i.e. farmer who is already facing challenges on account of depressed commodities prices and increased input cost. This burden is also nullifying the various supportive initiatives taken by the Government to improve the financial health of farmers.

These views were expressed by Abdul Waheed, Director General of Pakistan Automotive Manufacturers Association (PAMA). He said that the piling up of Sales Tax refunds have become a major concern for the industry while it continues to nullify the various supportive initiatives taken by the Government to improve the financial health of poor farming community.

He suggested that in order to minimize the accumulation of refunds, tractor industry is continuously urging the government to reduce the rate of input tax on purchase of imported components by tractor manufacturers to match the reduced rate i.e. 5%. 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, Government is not heeding on the plea of the industry.

Further, the STARR system of FBR is 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 tax payers with respect to their huge amount of refunds accumulating on monthly basis, DG PAMA mentioned.

FBR should move on swiftly for completion of upgradation exercise otherwise manual practice of accepting refunds should be continued till the successful launch of auto refund plan.

These remedial steps are imminent at this stage to maintain the confidence level of foreign investors on our regulatory bodies and business environment.