Agri income tax: really, are we serious?—I

One of the main conditions of the IMF programme was introduction of proper income tax laws for agriculture income. This condition has been complied with, with the introduction of amended legislations in all provinces however for this discussion only those passed in the Punjab and Sindh have been used.

New law and rate increase

This writer has fully examined the Punjab Agricultural Income Tax (Amendment) Act, 2024 and the Sindh Agricultural Income Tax Act, 2025. After the review of these acts this writer is almost sure that legislators, including the Chief Ministers, have not seen these statutes. Or, if they have read them they are not interested in practical implementation.

The bigger tragedy is that no tax bar or chamber or association has talked about these statutes when over 70 percent of our population is engaged in agricultural activities. This means that as a nation, which is actually a gathering of people, we have decided that this is only the ‘tick the box’ exercise, not to collect revenue from such sources of income. There appears to be a method in the madness as it has been ensured that no tax is actually collected.

Before the two statutes the maximum rate of tax on agriculture income was 15 percent without any super tax if the income was above Rs 4.8 million. Under the new law both in Sindh and Punjab this rate has been increased to 55 percent (after including Super Tax at a certain level of income).

This means that there is an absolute increase in the rate of tax of 40 percent which is over 350 percent of the earlier rate. This does not make sense. I wonder if there would be very few examples in the world where such an increase has been made. This writer has the following questions for the public with respect to this rate:

a. Whether or not the legislators, including the Chief Ministers, are aware that the majority of their population has been taxed under the new regime with this rate. The case in Punjab is very interesting. There is no rate schedule in the act. It has been stated that rate will be prescribed in the rules. This means that legislators who passed the act were not told the rate which has been prescribed.

This legislation should be considered unconstitutional in public interest as the basic ‘ingredient’ has not been disclosed at the floor of the house. The rate schedule is prescribed in the rules. Sindh is more constitutional as the rate schedule has been given in the act. It is however clear that Sindh’s legislators were not bothered;

b. Whether or not any empirical study has been made for prescribing this rate for a particular kind of income. In this respect the academic institutions have completely failed in Pakistan which do not provide any reasonable study on such subjects;

c. The rate prescribed is high but it has to be noted that our legislators are not to be blamed. They were asked to levy tax on all income; therefore, they copied the rate schedule which is prescribed under the income tax law for company and non-company cases including super tax. In that process they completely ignored that a day before, July 1, 2025, such tax is at 15 percent, which is now going to be increased to 55 percent.

All the discussion in the urban areas which the writer has heard, for the last forty years, have always ended with the idea that agricultural income should be taxed. Very few of those people knew that for example in Punjab this tax has been there since 1997 with a rate of 15 percent.

However, as per the Budget Documents, the estimated revenue in Punjab is of Rs 3.5 billion; and in Sindh it is Rs 1.3 billion with the rate of 15 percent in the total tax collection of Pakistan of over Rs 13,000. The writer is almost sure that this collection is not on the basis of a rate of 15 percent on net income. It is only the basis of a minimum tax which has now been removed. So effectively people at large have been defrauded. The expected collection under the new law in writer view will be less than what was collected last year.

Method in the madness

The following facts will reveal that there is a method in the madness. This shows that the feudal lords in Punjab and Sindh are not fools. What they have done is actually befooling the IMF and getting rid of even what is being paid at present. The story is as under:

Prior to the amendment made in both the law there was a concept of minimum tax on agriculture income based on land holding this was called Land Tax. The exact provision as existed in the Sindh law is reproduced as under:

CHAPTER-II

LAND TAX

3. Subject to the other provision of this Ordinance, there shall be charged, levied, and paid for every assessment year a land tax in respect of cultivated land of an owner at the rates specified in the First Schedule to this Ordinance.

4. The land tax shall be payable by the owner of land in respect of cultivated land in such manner as may be prescribed.

5. The land tax shall be assessed and collected by the Collector in such manner as may be prescribed.

CHAPTER-III

AGRICULTURAL INCOME TAX

6. (1) Subject to the provisions of this Ordinance, in addition to the land tax charged, levied for any year, there shall be charged, levied, assessed and paid for each assessment year agricultural income tax in respect of total agriculture income of the agriculture income year of an owner at the rates specified in the Second Schedule to this Ordinance.

Provided that if any, if the tax assessed under this sub-section works out to be less than the tax calculated in accordance with the First Schedule, then the owner shall pay the tax worked out in accordance with the First schedule.

Section 3 of the Punjab Agricultural Income Tax Act 1997 stated the same thing however Sindh’s legislation is more civilized and correct.

3. Charge of agricultural income-tax.— (1) Subject to the other provisions of this Act, there shall be levied, assessed and collected each year a tax in respect of agricultural income of a tax year of an owner at the rate specified in the First Schedule to this Act.

Explanation.— For the purposes of this sub-section the cultivated land during a tax year shall be deemed to be agricultural income

(2)………..

(3) Subject to the other provisions of this Act, there shall be levied, assessed and collected for each assessment year commencing on or after the first day of July, 2001, agricultural income tax in respect of the total agricultural income of the income year of every person at the rate specified in the Second Schedule:

Provided that where, by virtue of an amendment in the Second Schedule, the rate of income tax, for the purpose of assessment in respect of any assessment year, is altered, the rate of income tax existing prior to the said alteration shall continue to apply in respect of any assessment year to which the said existing rate is applicable.

(4) Out of the two taxes assessed under sub-sections (1) and (3), an assessee shall be liable to pay one tax the amount of which shall be greater

The rate of minimum tax based on land holding as prescribed in the Sindh Act was as under:

THE FIRST SCHEDULE

(See section 3)

i) Irrigated land Rs. 200 per acre per annum.

ii) Un-Irrigated land Rs. 100 per acre per annum.

iii) Matured Orchard (Banana and Betel Leaves) Irrigated Rs. 700 per acre per annum.

b) Un-Irrigated Rs. 350/- per acre per annum.

(To be continued)

Copyright Business Recorder, 2025