In a move that could impact the agricultural sector, the federal government is planning to raise the sales tax on tractors from 10% to 14%.

This proposed tax hike comes after the government withdrew a previous sales tax exemption on tractors in the last budget (2024-25) and imposed a 10% sales tax.

Sources within the Federal Board of Revenue (FBR) have revealed that the tax authority has recently held a meeting to discuss this matter. The FBR has now completed a proposal to increase the sales tax on tractors from 10% to 14%.

The tax department will implement the increase in sales tax after receiving approval from the Cabinet.

The finance ministry has already forwarded a summary regarding this proposal to the Cabinet, the sources added. They further explained that the rationale behind raising the sales tax to 14% is that the 10% input tax is not being fully consumed. Meanwhile, the standard sales tax rate is 18%, resulting in refunds being generated for the tractor industry. To address this issue of refunds, the proposal to increase the sales tax on tractors is under consideration.

The government had imposed the 10% sales tax on tractors through the Finance Act 2024, which came into effect on July 1, 2024. Prior to this, tractors had been exempted from sales tax.