The government has announced the budget for 2023 – 2024 with a lack of approximately Rs 7.58 trillion. The government hopes to cover this margin by taxes and new loans. However, many experts suggest that the topic of agricultural income taxes have never thoroughly been viewed. Many theorists suggest that the sector (Agricultural) that has the most contribution to GNO ( Gross National Output) has never been properly taxed.

In the year of 2022, the agriculture sector contributed an astonishing Rs 16 trillion to the GDP of Pakistan, yet its taxes were only Rs 3 billion. Even though according to IDO – 2001, the agricultural sector is to be exempted from federal taxes, the only issue that arises is that even the provincial taxes are amounting to nothing compared to the contribution in GDP.

Agriculture Tax in Punjab, Pakistan 2023

According to the Income Tax Act of 1997, there are two types of taxes on the agricultural sector. One is the land-based tax while the other is the Income-based tax. The land based tax deals with the cultivated or irrigated land per acres. The amount of acres of land dictates the imposed tax. To put it simply, there is no tax imposed if the cultivated land is less than 12.5 acres. You can read more on the land-based income tax here.

Agricultural Income Tax in Punjab, Pakistan in 2023

The income tax is based on the amount of income generated per year. This tax is to be paid to the tax collector assigned for your district. 

1. If  the total income generated is less than 100,000 Rs, there’s a 5% income tax.
2. If the income generated is more than 100,000 Rs but less than 200,000 Rs, the tax imposed is 5,000 Rs plus 7.5% of the amount that is more than 100,000 Rs.
3. If income is more than 200,000 Rs but less than 300,000 Rs, the tax imposed is 12,500 Rs plus 10% on the amount that is more than 200,000 Rs.

This income is not assessed or the tax isn’t collected by FBR as many claim. A tax collector is assigned to every district and they are responsible for the collection of tax.

Sindh Agricultural Income Ordinance

The Sindh Agricultural Income tax has a similar taxing policy. In Sindh, if the agricultural income ranges between Rs 1.2 million and Rs 2.4 million, the tax imposed is 5% on the income. However, if the income is more than Rs 4.8 million, the tax imposed is 15% of the income alongside a Rs 300,000 fixed tax.

In theory, this much collection of tax according to this Act should’ve amounted to a lot more than Rs 2.88 billion but it didn’t. This could be because of various reasons. Either the tax collecting agencies aren’t performing as well as they should’ve or there are many culprits out there who are not paying taxes.

Reasons for the Downfall in Taxes in Punjab, Pakistan 2023

There are a variety of potential reasons for the downfall of taxes. It isn’t easy to tax a sector that contributes to a quarter of the country’s GDP. Experts have suggested that there are many sharks that are not paying taxes but making unimaginable profits by the agricultural sector. Moreover, the exports of Pakistan have plummeted over the years even though the cash crops should’ve boosted our exports. Cotton has to lead the way as agriculturists suggest and rice needs to back up the economy.

Moreover, there seems to be a lack of will in both federal and provincial governments to reform the taxes. No government has taken an initiative in amending the tax reforms or the acts to ensure they collect more from the agricultural sector. The other side of the coin suggests the opposite story. Even though Pakistan’s agricultural sector contributes healthily to the GDP of Pakistan, taxing them more would be a huge burden on them.

This is because most of the farmers are from rural areas and are not big investors but have chosen farming as an occupation due to weak family backgrounds. They merely generate enough to make a living for their family. However, there are numerous giants in the agricultural sector who have hundreds and even thousands of acres of land and yet they’re not paying taxes.

Another crucial issue is that most of Pakistan’s fertile and agricultural land is not used for cultivation and has been kept vacant by many elite and high-profile members of society. If this land is  to be used for agricultural purposes and is cultivated on a regular basis, Pakistan’s economy can benefit a lot from it alongside the government as more and more taxes can flood in.