A serious liquidity shortage led Pakistan’s major agricultural machinery maker, Millat Tractors Limited (MTL), to cease operations on Friday.
The entire tractor manufacturing industry is currently undergoing a drastic liquidity crunch according to MTL which has informed the Pakistan Stock Exchange (PSX) and all the concerned federal ministries of the same. It added that the industry’s sales tax refunds of over Rs. 8 billion haven’t been released by the Federal Board of Revenue (FBR) for the last two years.
An industry leader said,
The industry is now making a loss on each unit it sells due to accumulating sales tax refunds, which is increasing at the rate of Rs. 150,000 — more than its profits — for each tractor it sells.
He elaborated that the business pays a 17 percent sales tax to its supplier from whom it obtains components, and only five percent of sales tax can be passed on to consumers, with the government compensating the remaining 12 percent.
This imbalance of about Rs. 150,000 per item is growing and has now reached Rs. 6 billion for Millat Tractors Ltd. Essentially, the plant is losing money on every unit it sells, which leaves the company with no option but to shut down operations, or at least prevent further losses, the industry leader added.
Malik Aftab, a vendor, and dealer of used tractors revealed that when FBR had attempted to delay the payment on the basis of agriculture and non-agricultural sales, the industry had fought back and won its cases in tax appeal courts, with the federal Ombudsman, high courts, and the Supreme Court.
MTL had sold 35,000 tractors last year and planned to sell 44,000 in 2022. However, its decision to abandon the market will result in a monthly reduction of 3,000 machines. This will cause the prices of tractors to soar as the psychological loss to the market always outweighs the statistical loss.
Aftab also warned that the problem must be resolved immediately as it could have a ripple effect to affect other companies and the entire market.