LAHORE: Further investment in tractor industry is linked to stable government policy that provides at least level playing field to the local manufacturers instead of periodically facilitating tractor imports on concession.Sikandar Mustafa Khan Chairman of largest local tractor manufacturing company stated this while addressing the members of Lahore Economic Journalists Association on State of Tractor industry in Pakistan. He said tractor is the only automobile sector that has shown sustained growth even during recession of past two years and has always faced the foreign competition head on. He said that the cost of Indian and Chinese tractors is much higher than the locally produced units of same specification. He said the rates of Indian 50 horse power tractor is Rs225000 higher than Pakistani tractor while the Chinese tractor is Rs11000 more expensive. He said the main reason for the high competitiveness of local tractors is that the models that command 80 per cent of the market have local component level of 91 per cent.
He said these tractors can not compete with the local international brand tractors even if the import is allowed at zero rated duty. He hastened to add that the local industry should have at least 10 per cent duty protection. He regretted that the federal government has put undue pressure on the tractor manufacturers by announcing to provide Rs200000 subsidy on tractors imported on zero import duty.
He claimed that this measure would not create much dent in the sales of local tractors because of their superior quality but has sent a negative signal for further expansion of production capacities. He said currently both the vendors and the manufacturers are operating on their full capacities. Further expansion in capacities he added required huge investment but the short term government policies that are subject to change on whims of the rulers hinder further investment.
He said tractor imports have been allowed three times during past 13 years that has eroded the confidence of the tractor manufacturers. He said first duty free import of tractors was announced in 1996 under the banner of Awami tractor Scheme and then the Shaukat Aziz government allowed duty free imports of tractors in 2005. He said both schemes failed due to better quality and competitive rates of Pakistani tractors. He said the present scheme is more dangerous as the government is providing Rs200000 subsidy in addition to waiver on duties and taxes.
Sikandar said that Pakistan produced 53470 tractors in 2007-08. He said the two main tractor manufacturers of the country are on target to roll out 60000 tractors this fiscal. He said during July 2008 and March 2009 period the industry has produced 42220 tractors and is set to add another 18000 units by end June this year.
He said tractor demand is likely to stabilize at 55000-60000 units in the short term and further growth would come if the agricultural economy continue to grow at fast pace. He said higher productivity coupled with lucrative commodity rates has empowered even farmers with smaller land holding to afford tractor. He further stated that tractor industry globally is on decline but the Pakistani tractor industry weathered the recession comfortably.
He said though the industry is exempted from taxes and duties but the vendors have to pay the sales tax. He said manufacturers protect the vendors from liquidity crunch by refunding them the sales tax and then claim refunds from the Federal Board of Revenue. He regretted that the refunds are delayed by five to six months instead of two weeks as stated in refund policy. He said Rs1.5-1.7 billion refunds of tractor industry remain struck up with FBR that creates liquidity problems for the industry