KARACHI: The suspension of production by Millat Tractors Ltd (MTL) has led to the closure or slowdown of operations at parts vendors, potentially resulting in worker layoffs. MTL’s production halted after assembling and selling fewer than 1,000 units in August, attributed to uncertainties surrounding GST refund mechanisms following the imposition of a 10% GST on tractor sales from July 1, 2024.
The Federal Board of Revenue (FBR) has yet to establish a system to differentiate between farmers, who are subject to the 10% GST, and non-farmers, who face an 18% GST. This lack of clarity is affecting operations.
Bolan Castings Ltd (BCL) reported a significant drop in sales due to reduced customer orders and payment delays, leading the company to suspend production from August 26 until further notice. BCL had previously halted production from August 12 to 16 for similar reasons.
Abdul Rehman Aizaz, chairman of the Pakistan Association of Automotive Parts and Accessories Manufacturers (Paapam), described the situation as dire. Many tractor vendors in Lahore have either shut down or reduced production, with the potential for worker retrenchment if the FBR fails to address the GST refund mechanism promptly.
Aizaz proposed that if the government aims to provide tax relief to farmers by applying a 10% GST instead of 18%, it should directly refund farmers rather than relying on the industry to front the tax and later seek reimbursement without a clear process.
The issue of delayed GST refunds has historically led to financial strain across the tractor manufacturing supply chain. Additionally, Pak Suzuki Motor Company Ltd (PSMCL) has been closed from August 1 to 23 due to parts shortages.
Aizaz also criticized the car financing limit of Rs3 million, arguing it hinders sales and suggested that lifting this limit, coupled with an anticipated interest rate drop, could revive car sales. He also called for imposing a regulatory duty on imported used cars under 1,300cc to support local industry, noting that while the FY25 budget introduced such duties on cars above 1,300cc, 65% of imported used cars are below this threshold.
