The government’s decision to impose value added tax (VAT) on the tractor imports has adversely affected farmers who are already struggling with the shortage of labourers in the agriculture sector.

According to the importers, the government decision to impose VAT has hiked the price of a tractor by up to Rs150,000 per unit. 

Earlier, the government had been waiving VAT in all types of tractors imported for agricultural works.

However, the government revised the provision from this fiscal year. The government claims that imported tractors are being misused for transporting construction materials and manufactured goods rather than its intended use in the agriculture sector. 

According to the Financial Act introduced along with the current fiscal year’s budget, imports of all kinds of tractors, except power tillers of up to 1,800cc in capacity, will be subject to VAT of 13 percent.

Apart from power tillers, popularly called hand tillers, almost all other tractors imported into the country are of 3,500 cc in capacity. The government however, has kept the customs duty at five percent. 

Merchants and farmers have criticised the government’s move to impose VAT on imported tractors saying that it would mainly affect poor farmers. Om Sharma, an official of Mahabir Automobiles that imports Swaraj brand tractors, said equipment prices have escalated with the imposition of VAT.

“As the importers pass on the tax amount to buyers, it mainly affects farmers who buy such equipment,” Sharma said. Kedar Thapa, president of Farmers Association Morang, said the government has been introducing policies that adversely affect the sector instead of facilitating it. “It will discourage farmers as agricultural workers are being scarce day by day.”

According to farmers, agricultural labourers are in short supply as they continue to seek work overseas in large numbers. 

Similarly, many farmers are embracing modern technology such as using tractors to till fields instead of oxen, but the high price of acquiring modern equipment may deter farmers in the future.

The government used to charge only one percent customs duty on imported tractors. Seven years ago, the government hiked the rate to five percent saying that tractors imported for farming purpose were increasingly being seen in factories and on highways to ferry other commercial goods. 

The country imports around 7,000 tractors, with average capacity of 3,500cc to 3,600cc, per year for agricultural purpose.