Contrary to common belief, agricultural income in Pakistan is subject to taxation, albeit with notable distinctions from other income sources.
Primarily managed by provincial authorities, the agricultural income tax imposes a maximum rate of 15% in Punjab and Sindh, significantly lower than rates for salary and business incomes at the federal level.
Following the federal budget announcement, demands have intensified, particularly from the salaried class, for aligning AIT rates with those of federal business incomes to ensure horizontal equity—where individuals with equivalent incomes pay equivalent taxes.
Critics argue that the current AIT revenue, less than Rs4 billion annually, represents a minuscule fraction of the GDP despite agriculture’s substantial 24% contribution, valued at Rs22 trillion. This discrepancy underscores the misconception that agriculture solely comprises crop farming, focusing tax discussions predominantly on landowners.
Imposing mandatory AIT filings for farmers owning more than 12 acres could yield approximately 0.7 million returns annually, necessitating a substantial administrative infrastructure, potentially a fifth the size of the Federal Board of Revenue.
In Punjab and Sindh, where the agriculture sector predominantly consists of crop farming, AIT assessments are based on both land and income, with farmers opting for the higher amount. Notably, some exploit the system by sheltering business incomes under agricultural labels, a practice deemed problematic for tax compliance.
Despite these complexities, the sector’s economic significance and the diversity of agricultural subsectors, including livestock, dairy, fisheries, and forestry, further complicate equitable taxation considerations. The current AIT system, typically fixed for small and medium farmers, may not adequately reflect actual income, posing challenges for tax administration.
Addressing these issues requires balancing the taxation burden on large landowners while safeguarding the interests of small and medium farmers struggling with economic pressures, exacerbated by rising input costs and fluctuating crop prices.
In conclusion, reforming AIT policies to align with broader economic principles and equitable taxation frameworks is imperative. Presumptive taxation based on productive land indices could provide a viable solution, ensuring fairness while simplifying compliance for farmers across various scales of operation.
