Karachi, June 14, 2022: The government in the Federal Budget has proposed to reduce GST from current 5% to 0%, which will benefit farmers.
If the measure is approved, the tractor companies will likely pass-on the benefit of lower taxes to consumers.
Looking back, in the Federal Budget FY17, the same government had announced a reduction in GST for tractors from 10% to 5%, as a result of which tractor prices had witnessed a decline of Rs 35k to 80k.
Simultaneously, sales volume during the same period jumped to 54,339 units, up 64% YoY. The expected measure is to drive volumes in a similar fashion during FY23.
Moreover, the Finance Minister had also mentioned addressing sales tax refund issues faced by the tractor industry in the Budget speech, which would resolve the sector’s working capital matters.
Currently the industry’s sales tax refunds have stacked up to around Rs 9 billion, out of which more than Rs 6 billion is due to be paid to MTL, while AGTL’s pending amount accumulates close to Rs 3 billion.
Sales tax exemption on seeds to improve farmer income
In a bid to improve farmer income, the government has exempted sales tax on seeds such as maze, canola, and sunflower among others, which is expected to further drive sales for tractors on the back of higher rural income.
Among the OEMs, higher rural income is expected to provide support to INDU’s sales volume as the company enjoys a strong customer base in the rural areas (50% of total sales).
“A key risk is rejection of Finance Bill proposals that offer tax incentives given IMF’s pressure to meet the ambitious tax revenue targets,” said Wasil Zaman at JS Research.