Tractor Industry Crisis Threatens Livelihoods of 500,000 Families
Tractor Industry on the Brink of Shutdown
Pakistan’s tractor industry is facing an unprecedented crisis that could lead to its complete shutdown, putting the livelihoods of nearly 500,000 families at risk. The sector, which directly employs approximately 200,000 workers, is in jeopardy due to a series of regulatory and financial challenges.
Impact of New Sales Tax and GST Refund Issues
The crisis began in June 2024 with the imposition of a 10 percent sales tax on tractors, a significant change for an industry previously exempt from such taxes. This shift has forced the sector into a complex and delayed refund system. The Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM) has sounded alarms, indicating that the prolonged delay in processing General Sales Tax (GST) refunds by the Federal Board of Revenue (FBR) and the complications arising from the new GST regime under Statutory Regulatory Order (SRO) 563 are pushing the industry towards collapse.
Complications and Financial Strain
PAAPAM reports that around 250 direct suppliers to major tractor assemblers have already shut down due to delayed payments for parts. The new SRO 563, which replaces SRO 363, has introduced additional complications by restricting GST refunds to transactions involving farmer buyers only. The absence of a clear mechanism to differentiate between farmer and non-farmer buyers has resulted in billions of rupees in refunds being withheld.
Moreover, the industry is burdened by unresolved legacy refunds under the old SRO 363, totaling over Rs. 10 billion, which have been unpaid since April 2020. This financial strain has led to significant losses for tractor assemblers, forcing them to rely on bank borrowings to sustain operations. The resulting ripple effect has impacted raw material suppliers and small and medium-sized enterprises (SMEs) within the engineering sector, amplifying the crisis’s reach.
