The Economic Co-ordination Committee (ECC) of the Cabinet which is scheduled to meet on Friday (today) will slash General Sales Tax (GST) on tractors by 11 per cent ie from 16 per cent to 5 per cent which according to analysts will encourage flying invoice of tractors, well informed sources told Business Recorder.
To be presided over by Finance Minister Dr Abdul Hafeez Shaikh, the ECC will also direct Zarai Taraqiati Bank Limited (ZTBL) to resume agriculture loans to farmers, suspended last year, the sources added. "The ECC will reduce GST to 5 per cent for this fiscal year, which, however, will be gradually increased to 8 per cent during 2011-12, 12 per cent in 2012-13 and 16 per cent in 2013-14," the sources continued.
Vending industry analysts argue that attempts of local tractor assemblers to reduce GST is in fact an attempt to gain illegal benefits by way of illegal trading of flying invoices of tractors, parts and inputs. "On the basis of flying invoices tractor manufacturers would claim bogus refund as happened in the past," they added.
Zero rating of GST on agriculture tractors was provided under the Fifth Schedule to the Sales Tax Act 1990 with the intent to ensure availability of tractors to farmers at affordable prices. This concession was withdrawn in March 2011 through an Ordinance, resulting in increase of prices of agriculture tractors by Rs 90,000 to Rs 200,000.
The production date maintained by the Engineering Development Board (EDB) indicates that production of tractors since March 2011 has declined drastically from over 72,000 units to an estimated 25,000 units per annum. Sales tax paid by vendors was refunded to OEMs, which ensured that there was no incidence of sales tax on farmers. Last year, tractor industry paid over Rs 5 billion in the form of taxes. Now, Rs 7-8 billion is estimated by the government in lieu of sales tax on expected production of 80,000 units during the current financial year. However due to decline in production the tax collection will not exceed Rs 3.7 billion which implies less revenue as compared to last year.
FBR maintains that the economy will in fact suffer an additional loss of over Rs 35 billion due to reduced sales to tractors from Rs 80,000 units per annum to around 25,000 units and act as 'double jeopardy' both to industrial and agriculture sectors.
The EDB, sources said, had proposed that sale tax zero rating on agricultural tractors may be restored or deemed price (say 25-30 per cent of the actual price) may be fixed for sales tax purposes or levy of sales tax may be staggered to four years instead of imposition of @ 4 per cent per year in one go.
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