July 28, 2020 (MLN): The Government of Pakistan has approved a reduction in General Sales Tax (GST) on tractors from 5% to zilch, for the Financial Year 2021.
According to a report by Intermarket Securities, this is a result of the Rs. 1.5 billion subsidies approved for the tractor industry, which in turn, was a part of the Agriculture support package worth Rs. 50 billion announced in May. Another subsidy of Rs. 6.8 billion has been approved by the government for Agri-loans to support farmers.
As a consequence of the aforesaid factors, the demand for tractors is going to bounce during the said year. The report makes this anticipation by drawing parallels between the Agriculture Package and the Kissan Package that was introduced by the prior government in FY16.
Reportedly, the implementation of the Kissan Package had led to an increase in tractor sales by around 44% over a course of three years. As stated earlier, several analysts are expecting the agriculture package to generate a close, if not the same, outcome as the elements of both the packages are more or less the same in nature.
This expectation of growth in demand will also be backed by other steps taken by the government, such as the subsidy provided on fertilizers of up to Rs. 243/bag for Urea and Rs. 95/bag for DAP, reduction in interest paid on agri-loans by around Rs. 6.8 billion, and an increase in wheat support prices by 3% during May.
If and when the demand for tractors rises, Millat Tractors Limited is likely to be the major beneficiary of that scenario, as per the report. This is fairly obvious by the fact that Millat leads the tractor industry in terms of its market share and gross margins.
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