Mohsin Siddiqui (Chief Reporter)
The federal government is planning to raise the sales tax on tractors from the current 10 percent to 14 percent. This decision follows the recent budget for the fiscal year 2024-25, where a sales tax exemption on tractors was withdrawn and a 10 percent sales tax was imposed instead.
In a meeting held by the Federal Board of Revenue (FBR), the board has finalized a proposal to increase the sales tax on tractors. The proposal is now awaiting approval from the Cabinet. The finance ministry has already forwarded a summary of this proposal to the Cabinet for consideration.
According to sources, the primary reason for this proposed increase is that the current 10 percent sales tax does not fully cover the input costs of the tractor industry. With the standard sales tax rate being 18 percent, the discrepancy results in refunds being generated for the tractor industry. To mitigate this issue, the government is considering raising the sales tax to 14 percent.
Earlier this year, through the Finance Act 2024, the government imposed a 10 percent sales tax on tractors starting from July 1, 2024. Prior to this, tractors were exempted from sales tax. This shift marked a significant change in the government’s approach to taxing agricultural machinery, aiming to increase revenue and reduce the tax refund phenomenon.
The proposed increase in sales tax is expected to have various implications for the tractor industry. Manufacturers may face higher costs, which could potentially be passed on to consumers. Farmers, who rely heavily on tractors for their agricultural activities, might experience increased financial burdens as a result.
The tractor industry stakeholders have expressed concerns about the potential impact of this tax increase. They argue that higher taxes could lead to increased prices for tractors, which may discourage farmers from purchasing new machinery. This, in turn, could affect agricultural productivity and overall economic growth in the sector.
From the government’s perspective, increasing the sales tax on tractors is seen as a necessary step to streamline tax policies and reduce the burden of refunds. The FBR’s proposal aims to align the tax rate for tractors more closely with the standard sales tax rate, thereby reducing discrepancies and ensuring a more balanced approach to taxation.
If the Cabinet approves the proposal, the new sales tax rate of 14 percent on tractors will come into effect. This change is expected to generate additional revenue for the government while addressing the issue of refunds in the tractor industry. However, the government will need to carefully monitor the impact of this tax increase on the agricultural sector and make adjustments if necessary.
