Islamabad: The Government of Pakistan has increased the sales tax rate on tractors to 14%, up from 10%, a move targeting both locally produced and imported tractors with engine capacities between 25kW and 75kW. This tax hike is part of efforts to streamline the financial operations of tractor manufacturers by reducing the accumulation of pending sales tax refunds.

According to AKD Securities Limited, the increase in the Goods and Services Tax (GST) is anticipated to alleviate the financial strain on tractor manufacturers by mitigating the further accrual of sales tax refunds from the government. The adjustment is expected to enhance cash flows for major manufacturers like Millat Tractors Ltd. (MTL) and Al-Ghazi Tractors Ltd. (AGTL) by PKR 3.5 billion and PKR 1.1 billion respectively.

Previously, with the GST at 10% following the removal of the zero-rated status in the Federal Budget FY25, tractor companies faced challenges due to inadequate claims against the higher input GST rate of 18%. This disparity led to substantial sales tax receivables, with MTL and AGTL reporting outstanding amounts of PKR 6.3 billion and PKR 1.2 billion, respectively.

While the increased tax rate is likely to raise prices for consumers, potentially dampening demand in an already slow market, the Punjab government’s ‘Green Tractor Scheme’—aiming to subsidize the purchase of 9,500 tractors—could bolster consumer interest and support sales.