LAHORE: The Pakistan Association of Automotive Parts & Accessories Manufacturers (PAAPAM) has announced that the tractor industry is on the brink of a complete shutdown due to the Federal Board of Revenue’s (FBR) prolonged withholding of GST refunds and the recent implementation of the new GST regime under SRO 563.
This situation has created a severe cash flow crisis across the entire supply chain, affecting everything from raw material suppliers to small and medium-sized enterprises (SMEs) involved in the engineering sector.
The issue has escalated to a point where Paapam has decided to approach the Prime Minister directly, as previous attempts to resolve the matter with the Finance and Industries ministries have proven unsuccessful. “It appears that the FBR has more power than the government itself, holding the entire engineering base of the country hostage,” said Paapam Chairman Abdur Rehman.
“The situation is dire, with the GST refunds being withheld from tractor assemblers for years, and the new SRO 563 further complicating the issue.”
The chairman further explained that the entire supply chain—from steel suppliers to the vast engineering SME base that contributes to the production of the world’s most affordable agricultural tractors—is at a complete standstill. The FBR’s actions threaten not only jobs but also tax revenue, import substitution, and the export of tractors and parts.
When asked for details, Paapam Senior Vice Chairman Mumshad Ali revealed that at least 250 direct suppliers to the country’s two major tractor assemblers, Millat Tractors and Al-Ghazi Tractors, have halted operations due to delayed payments for parts supplied. “Assemblers are unable to pay their suppliers, which has forced vendors to shut down their operations. If this continues, the tractor assemblers themselves will be forced to cease operations within a week,” he warned.
The root of the problem lies with SRO 563, which governs GST refunds to tractor assemblers. Prior to 2022, refunds were issued under SRO 363, but the new SRO 563 has introduced complications by limiting refunds to farmer buyers only. There is currently no mechanism to distinguish between farmer and non-farmer buyers, leading to billions of rupees in refunds being withheld by the FBR. Additionally, older refunds under SRO 363 remain unpaid, along with penalties, pushing assemblers to seek legal recourse.
This unresolved issue has left the entire tractor industry in limbo. Without these refunds, assemblers are incurring losses on each tractor sold, forcing them to rely on bank borrowings, which have now reached their limits. As a result, they are no longer accepting fresh bookings or invoicing tractors, except those financed through banks. This cash crunch has caused months-long delays in payments to suppliers, a situation that the SME sector cannot sustain.
In light of these developments, the Paapam executive committee has resolved to seek the Prime Minister’s intervention.
We need the FBR officers to see the bigger picture and help resolve this issue rather than exacerbate it,“ Paapam officials stated. The association hopes that by bringing this matter to the highest level of government, a solution can be found to prevent the imminent collapse of the tractor industry.
Copyright Business Recorder, 2024
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