LAHORE - The Pakistan Automotive Manufacturers Association (PAMA) has requested the government to abolish custom duty, additional custom duty, and reduce the rate of input tax on tractors.

While submitting Budget Proposals 2017-18 for the tractor industry, PAMA stated that due to these issues the entire industry was facing liquidity crunch, affecting the trust of foreign investors/shareholders.

The Engineering Development Board (EDB) had earlier allowed import of those components for manufacturing of agricultural tractors which had not been developed in Pakistan at zero percent custom duty. “However, during the year 2015-16, additional custom duty of 1% on import of such components was imposed by the government through mini budget. Further, 1% custom duty was imposed through budget for the year 2016-17, accumulating to a total of 2% customs duty,” stated PAMA.

The association reasoned that this levy of duty had contributed to increase in cost by approximately Rs 33 million during January to December 2016. “It is proposed to exempt imports made under SRO 655(I)/2006 and SRO 656(I)/2006 from additional customs duty under SRO-1178(I)/2015 and agricultural tractor parts being imported,” suggested PAMA.

The association, while giving the rationale behind this suggestion, stated that additional duty on input items like raw material, component, sub-components and CKD of the automotive industry that were not manufactured locally had impacted the highly cost sensitive sector. “It will keep the prices of agricultural tractors within the buying power of small and medium scale farmers. And the abolition of customs duty and additional customs duty on import of components allowed by EDB will help the company that has no other alternative besides import,” stated PAMA.

“This will eventually benefit the entire farming community,” stated PAMA, suggesting further reduction in the rate of input tax on purchase of imported components by tractor manufacturers to match the output rate. This will help the industry to reduce yearly refunds by 600-700 million, suggested the PAMA.

Besides, agricultural tractors are subjected to sales tax at the rate of 5%, as against, components purchased locally as well as imported components required to manufacture tractors are subjected to sales tax at the rate of 17%. “This has resulted in accumulation of legitimate refunds with FBR. Due to this, the entire industry is facing liquidity crunch, affecting the trust of foreign investors/shareholders,” stated PAMA.

While giving rationale behind this suggestion, the association stated that this would reduce the procedural difficulties in sales tax refund and save the administrative cost of OEMs and the Federal Board of Revenue.

“Presently, the Original Equipment Manufacturers (OEMs) have to suffer substantial financial burden due to lengthy reviewing process of FBR and incomplete documents/details submitted by small vendors,” stated PAMA.