Through an SRO issued yesterday, the Government of Pakistan (GoP) has increased the sales tax (GST) rate on tractors to 14% from 10% earlier. This increase applies to local and imported tractors with engine capacities ranging from 25kW to 75kW, notably covering all locally produced tractors. In the Federal Budget FY25, GoP removed the zero-rated status for tractors, imposing a 10% sales tax rate.
We believe an increase in GST would arrest the further accumulation of sales tax refunds from the government. This would result in ease of cash flows for Millat Tractors Ltd. (MTL) by PkR3.5bn (PkR18/sh) and PkR1.1bn (PkR19/sh) for Al-Ghazi Tractors Ltd. (AGTL).
Due to the lower output GST rate, tractor companies have insufficient adjustment claims against the input GST rate of 18%, leading to the accumulation of sales tax receivables from the government. To highlight, Millat Tractors Ltd. (MTL) and Al-Ghazi Tractors Ltd. (AGTL) have outstanding sales tax receivables amounting to PkR6.3bn and PkR1.2bn, respectively, as per recent accounts.
However, increased sales tax would raise tractor prices for consumers, potentially impacting overall demand in an already sluggish market. Nonetheless, the Punjab government’s ‘Green Tractor Scheme’, which subsidizes the purchase of 9.5k tractors, might support demand.
Courtesy – AKD Research