Tractor Industry Faces Closure As Vendors Halt Operations Over Delayed Payments

Around 250 suppliers have stopped despatching tractor parts to assemblers due to delayed payments.

The Pakistan Automotive Parts and Accessories Manufacturers (PAAPAM) has blamed this on the Federal Board of Revenue’s (FBR) withholding general sales tax (GST) refunds and a new GST regime that has disrupted cash flow within the industry.

PAAPAM senior vice chairman Mumshad Ali said the issue lies in SRO 563 which governs GST refunds to tractor assemblers. The regulation restricts refunds to farmer buyers, but there is no system in place to distinguish between farmer and non-farmer purchasers. This has resulted in billions of rupees in refunds being withheld and particularly hurt small and medium-sized enterprises (SMEs) in the engineering sector.

The cash flow crisis has been exacerbated by older GST refunds under SRO 363 remaining unpaid, along with associated penalties. Assemblers have stopped paying their suppliers and forced vendors to shut down. If this isn’t resolved, assemblers might indefinitely halt operations within a week.

Given the severity of the situation, PAAPAM has sought the premier’s help after failing to resolve the matter with the finance and industries ministries. Paapam chairman Abdur Rehman Aizaz criticized the FBR, stating that its actions have held the country’s engineering sector hostage. He emphasized that the situation threatens jobs, tax revenue, import substitution, and exports.

Prominent tractor manufacturers have already informed the Finance Ministry that operations have been shut down since July 1 due to the imposition of a 10 percent sales tax on tractor sales. The FBR has yet to notify a mechanism for processing the necessary sales tax refunds.

Since April 2020, pending refunds amount to roughly Rs. 10 billion.