Govt planning to increase sales tax on tractors by up to 14%

The federal government is poised to increase the sales tax on tractors in Pakistan from 10 per cent to 14 per cent, a move that is expected to raise the cost of these essential agricultural machines.

In the 2024-25 budget, the government removed the previous exemption and introduced a 10 per cent sales tax on tractors.

However, recent discussions within the Federal Board of Revenue (FBR) have led to a proposal for further increasing this tax to 14 per cent.

Sources revealed to Business Recorder that the FBR has finalised this proposal, which now awaits Cabinet approval. The Finance Ministry has already forwarded a summary to the Cabinet for review.

The rationale behind this proposed increase is to address an issue with refunds in the tractor industry. Currently, the 10 per cent sales tax does not fully account for the input tax credits, as the standard sales tax rate is 18 per cent.

This discrepancy leads to refunds being issued to the industry, which the government aims to curtail by raising the tax rate.

Since the Finance Act 2024, a 10 per cent sales tax has been in effect on tractors from 1 July 2024, replacing the previous exemption.

The proposed hike to 14 per cent is intended to mitigate the refund issue and align the tax regime more closely with the standard rate.