Lahore, The Pakistan Association of Automotive Parts & Accessories Manufacturers (PAAPAM), has welcomed the new tractor scheme in upcoming Punjab budget of 2015-16. Under the scheme 10,000 tractors will be distributed among farmers on subsidized rates.
Senior Vice Chairman, Mumshad Ali, said that the government had announced to provide a Rs. 200,000 subsidy per tractor in the next fiscal year.
“Such tractor schemes of Punjab as well as Sindh governments to provide cash subsidies to farmers, create an erratic demand in the market, resulting into a vicious circle of boom and bust in tractor industry.”
The government should divert funds of tractor schemes to the total production capacity of the country, giving subsidy on each tractor to avoid the misuse of scheme. In this way, every farmer will find the tractor easily at lower prices, eliminating corruption element from tractor schemes, besides bringing consistency in tractors production which has been suffering from ferocious cycle of boom and bust for a long time.
He said that partial financing creates distortion in the market and establish a parallel black market, disturbing the whole production sequence.
“These schemes, with government’s contribution amounting to billions of rupees, were misused at the same time by the investors while availing cash subsidy and buying tractors under provincial schemes and selling them in the market at a price lower than the price being offered by the tractor manufacturers thereby affecting the business of both tractor manufacturers and the auto part makers.”
Mr. Mumshad Ali argued that increase in prices of tractors due to 17% sales tax in last regime made it difficult for farmers to purchase new tractors especially in view of reduction in loans from ZTBL, resulting in low production levels of the tractor manufacturing. But the present government’s decision to reduce it from 17% to 10% from July 1 last year, has gone a long way in boosting sales.
In federal budget FY15, the government announced reduction in General Sales Tax (GST) and increased agri-credit loan target from Rs380 billion to Rs500b. Both these measures provided the much needed growth, he added.
Mr. Mumshad said that countries including India, Thailand, Malaysia and even Japan protect their local industry as they have imposed heavy taxes and penalties to discourage import.
For the revival of tractor industry and to provide an impetus to the agriculture sector, which is the backbone of the economy with 21.4% share of the GDP, PAAPAM proposes continuation of sales tax levy at 10% for 2015-16 as well. The revenue loss of the government may be offset by directing ZTBL to initiate Tractor Financing Scheme to enhance volumes, leading to high collection of revenue due to higher volumes at rationalised rate of sales tax.