FBR Raises Sales Tax on Tractors from 10% to 14%, Triggering Concerns Among Farmers

ISLAMABAD – The Federal Board of Revenue (FBR) has recently announced a significant increase in the sales tax on tractors both imported and locally assembled in Pakistan, raising it from 10% to 14%. The change might result in a tractor price increase by Rs.80,000. This decision, part of broader government efforts to boost revenue, has sparked widespread concerns among farmers and other stakeholders in the agricultural sector.
Government’s Stance on Rise in Sales Tax on Tractors
According to senior tax officials, the tax increase will not significantly affect tractor prices. Speaking to Business Recorder following a Senate Standing Committee of Finance meeting, an FBR Member stated that the refund issue for the tractor industry has been resolved, and they believe the price impact will be minimal.
Criticism from Farmers and Agricultural Bodies
However, this viewpoint has faced pushback, particularly from agricultural groups such as the Sindh Chamber of Agriculture (SCA) in Hyderabad. The SCA has urged the Senate Standing Committee of Finance to intervene, citing concerns over the negative implications this decision will have on both locally produced and imported agricultural tractors, which are vital for farmers.
The Sindh Chamber of Agriculture has strongly criticized the decision, calling on the Senate to direct the FBR to withdraw the increase. They argue that removing the checks placed on the tractor industry through the now-abolished SRO 563(1)/2022 gives too much freedom to manufacturers, who could exploit the situation and increase prices disproportionately.
SCA Vice President, Nabi Bux Sathio, voiced concerns over the government’s repeated tax increases, particularly the jump from 5% sales tax before June 30, 2022, to 10% post-July 1, 2022. He noted that, despite exemptions provided under the Sixth Schedule of the Finance Act 2022, local manufacturers had absorbed these benefits and raised tractor prices, passing none of the cost reductions onto the farmers.
Sathio further highlighted that these manufacturers are once again increasing tractor prices in light of the additional 4% sales tax increase to 14%, which he argued directly violates the spirit of SRO 563/2022. This regulation was initially intended to benefit farmers by reducing the cost of agricultural machinery.
Abolition of Refund Procedures for Tractor Manufacturers
The FBR issued this decision through SRO 1643(I)/2024 on Wednesday, meeting the long-standing demands of local tractor-manufacturing companies. In a separate notification (SRO 1644(I)/2024), the FBR also rescinded SRO 563(1)/2022, which had been in effect since April 29, 2022. This effectively removes the procedure of “Refund to Agricultural Tractor Manufacturers,” along with pre-refund audits, cost audits, and post-refund audits. This policy change is aimed at simplifying the administrative process for tractor manufacturers.
Broader Economic and Agricultural Impact
The continuous rise in sales tax on tractors poses a significant challenge to Pakistan’s agricultural sector. Farmers argue that increased costs will inevitably lead to higher food production expenses, reducing overall agricultural output. In turn, this could force the country to rely more on imported food products, further straining foreign exchange reserves.
The SCA has warned that the increased sales tax will create an immense financial burden on farmers already grappling with high input costs. If these price hikes are not addressed, the nation’s food production could decline, threatening both food security and the livelihoods of those dependent on agriculture.
Calls for Reconsideration
In light of these developments, the Sindh Chamber of Agriculture has requested that the FBR review the situation and reverse the decision to raise sales tax on tractors. They argue that further tax hikes will only exacerbate the difficulties faced by the farming community and could result in long-term damage to Pakistan’s agricultural sector.
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