Economic challenges, GST imposition badly hurt industry of transport parts

LAHORE: The tractor parts industry, a vital sector supporting the country’s agricultural backbone, is on the brink of a significant decline. Economic challenges, delayed refunds, and the GST imposition threatened to derail sales, impacting farmers’ livelihoods and national prosperity.

According to the details, the tractor parts industry is bracing for a downturn in sales after a stable year of tractor sales in the outgoing financial year. The previous financial year, i.e., 22/23, was also a year of low sales due to poor economic conditions in the country. Tractor sales this year are likely to touch 40,000 units, thanks to the government’s low markup tractor loan scheme.

Punjab government historically lifted substantial quantities of wheat at an announced support price; however, due to paucity of funds and lack of storage capacity due to heavy imports of grain from Ukraine, this has not happened this year.

This has forced the farmers to sell the bumper wheat crop in the market at lower prices. A drop in the farmer’s income directly affects the tractor parts industry, which prides itself on making a highly localized and, therefore, the most affordable agriculture tractor in the world. As the farmer’s income drops, so do tractor sales and the parts that go into these tractors.

Chairman of the Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM), Abdul Rehman Aizaz, while talking to Business Recorder said this year, sales are still 50% lower than the tractor production capacity in the country.

The tractor sector experienced significant financial losses throughout the refund processing procedure since the FBR had not disclosed the methodology. Refunds of more than Rs 10 billion, according to the MTL, have been delayed since April 2020.

Changes in the GST regime have historically affected the vendor industry. Natural disasters such as floods have also impacted the sector, and so has the withdrawal of subsidies. Rumours of the imposition of GST on the sale of tractors are further increasing apprehensions among farmers and the tractor and tractor parts sectors. If these rumors prove to be true, this will undoubtedly impact tractor sales volume in the coming year.

CEO Al Ghazi Tractors Sakib Eltaf in his comments regarding the issue said, “There are significant challenges facing our industry. The recent tax and policy changes have had a significant impact on the agriculture sector and AGTL supports the position taken by the industry. We are hopeful that the Government will address the challenges very soon. However, I want to assure our farmers and all other stakeholders that AGTL remains committed to the sector that is the backbone of Pakistan’s economy and we will continue to drive progress and innovation to support growth within the agriculture ecosystem.”

In the past, tractor subsidies by both federal and provincial governments and the zero-rated GST regime have resulted in tractor sales crossing 70,000 units in a year. These subsidies come and go, and so does the GST regime, resulting in a boom-and-bust cycle for the highly indigenous tractor and parts industry, and these policy shifts need to end, said Mumshad Ali, SVC PAAPAM.

Taufiq Sherwani, VC PAAPAM emphasized the sensitivity of the farming sector, noting its wide-reaching implications for the tractor and vending industries, as well as the livelihoods of thousands of families. He urged authorities to abandon plans for the imposition of GST on tractors. In fact the tractor loans scheme should continue in the coming budget as well, as a prosperous farming community is a key indicator of national prosperity.

Copyright Business Recorder, 2024