The sales tax refunds over Rs 5 billion of the tractor industry are stuck in FBR, creating liquidity crunch for the sector. In a letter sent to the FBR's anomaly committee, Al-Ghazi Tractors Limited (AGTL) stated that due to financial issues being faced by the government, sales tax refunds are not being released timely ie. three days from the claim sanctioned, instead, due refunds are released in tranches with delay of several months. Therefore, more than Rs 5 billion of tractor industry is presently stuck in FBR.
"The company is currently facing liquidity challenges and incurring huge financial cost due to non-refunded AGTL's due sales tax refunds by the authority to the tune of PKR 2.3 billion approx." the letter said. Currently output sales tax is chargeable on supply of tractors at 5% as against 17% payable as input tax while purchasing components, local as well as imported. Accordingly, local tractor assemblers are supposed to claim sales tax refunds that get accumulated by default and remain claimable from Government every month.
"Given the above imbalance, it is strongly proposed that GST should be abolished at import stage on CKD components imported by tractor OEMs for local assembly of tractors as it is not prudent paying sales tax directly to the government in a given month and subsequently claiming refund in the following month," it said.
"FBR has already adopted this mechanism under SRO 1125 of December 2011 for other sectors where special sales tax rates are being applied. By eliminating the aforesaid input tax at import stage, FBR will be reducing monthly refund claims to the tune of Rs 160m which will ultimately give a sigh of relief to the industry and poor farmers," it added. Above change implemented to rationalize the act, Govt. would not incur or bring any loss to the treasury. He also requested FBR to issue the refunds of over 5 billion to the tractor manufacturers to resolve their liquidity crisis.
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