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Tax Reform Targets Untapped Agricultural Income Sector

Despite the apprehensions, some experts argue that formal taxation of agriculture is long overdue and essential for Pakistan's economic stability.

The Sindh government has taken a significant step in reshaping Pakistan’s taxation framework by approving the Agricultural Income Tax Bill 2025. This decision, announced by Chief Minister Syed Murad Ali Shah, is set to come into effect on January 1, 2025, introducing a structured taxation system for agricultural earnings in the province. The legislation aims to integrate the agricultural sector into the formal tax net, a move that experts believe could generate substantial revenue and address long-standing fiscal challenges.

The bill stipulates that annual agricultural income below Rs. 600,000 will be exempt from taxation. Earnings between Rs. 600,001 and Rs. 5.6 million will be taxed progressively, with the highest bracket facing a 45 percent tax rate. Additionally, a super tax has been introduced, applying a maximum rate of 10 percent for incomes exceeding Rs. 500 million annually. Small corporate farming enterprises will be taxed at 20 percent, while large agricultural companies will be subjected to a 29 percent tax rate. The Sindh Revenue Board (SRB) will oversee the collection and enforcement of these taxes to ensure compliance.

The move is part of a broader attempt to expand the province’s tax base and generate additional revenue amid Pakistan’s severe economic challenges. The country’s fiscal deficit has been exacerbated by rising public debt and demands from international financial institutions to adopt structural reforms. Historically, agriculture has remained one of the least taxed sectors despite its pivotal role in the economy, contributing approximately 19 percent to the national GDP and employing nearly 38 percent of the workforce.

Prior to this development, the agricultural sector in Sindh, as in other provinces, largely evaded formal taxation. While nominal levies existed, enforcement was weak, and revenue collection remained negligible. This new bill represents the first comprehensive effort to formally tax agricultural income in Sindh, setting a precedent for other provinces. Experts believe that if similar measures are adopted nationwide, the total tax collection from agricultural income could exceed Rs. 1 trillion, contributing significantly to Pakistan’s fiscal stability.

The new taxation framework has elicited mixed reactions. Government officials have defended the move, arguing that it will lead to equitable taxation and improved development in the agricultural sector. Chief Minister Syed Murad Ali Shah emphasized that the funds collected would be reinvested to modernize farming practices, enhance irrigation systems, and provide financial support to small farmers. However, many in the farming community are skeptical about these assurances.

Farmers’ representatives have expressed concern over the increased financial burden. Rising costs of fertilizers, fuel, and irrigation have already strained the agricultural sector, and the introduction of taxes could further erode profit margins. Arif Khan, a prominent farmer from Sindh, voiced his apprehension: “We are struggling to cope with rising input costs. This new tax will only make matters worse for us. We fear it may even push some small-scale farmers out of business.”

The potential impact on commodity prices is another critical concern. Economic experts warn that agribusinesses and large farming companies may pass on the additional tax burden to consumers, leading to higher prices for essential food items. Dr. Ayesha Zafar, an economist specializing in agricultural markets, warned that food inflation could rise if companies seek to maintain profit margins. “The prices of wheat, rice, and sugarcane could see a noticeable increase, affecting consumers, particularly those from lower-income groups,” she noted.

Despite the apprehensions, some experts argue that formal taxation of agriculture is long overdue and essential for Pakistan’s economic stability. Without taxing such a significant sector, the government has historically relied on indirect taxes that disproportionately affect the poor. Tax reforms in agriculture, if implemented effectively and transparently, could create a fairer and more efficient tax system, reducing the state’s reliance on regressive taxation.

A critical challenge for the Sindh government will be ensuring that the new tax framework is implemented smoothly and equitably. Effective coordination between the SRB and farming stakeholders will be essential to minimize resistance and ensure compliance. There is also a pressing need for other provinces to adopt similar measures to prevent tax arbitrage, where businesses and farming operations relocate to regions with lower or no taxes.

Agricultural Income Tax Rates:

Income Bracket (Rs) Tax Rate (%)
Up to Rs. 600,000 Exempt
Rs. 600,001 to Rs. 1.5 million 10
Rs. 1.5 million to Rs. 5.6 million 20
Above Rs. 5.6 million 45

Super Tax Rates:

Income Bracket (Rs) Super Tax Rate (%)
Up to Rs. 150 million Exempt
Rs. 150 million to Rs. 500 million 5
Above Rs. 500 million 10

The Sindh Agricultural Income Tax Bill 2025 represents a turning point in Pakistan’s fiscal landscape, with potential long-term implications for the agricultural sector and the economy at large. Its success will hinge on transparent execution, stakeholder cooperation, and mitigating the impact on food prices for common citizens.

The views expressed in this article are the author’s own and do not necessarily reflect Coverpage’s editorial stance.

 

 

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