The taxation of Pakistan’s agricultural sector remains a contentious issue, driven by its significant contribution to the national GDP of around 24 per cent yet its disproportionately low contribution to tax revenue, amounting to less than 1pc — less than Rs4 billion of total taxes collected.

Advocates for agricultural income tax (AIT) argue it could provide a critical revenue stream, potentially addressing the country’s fiscal deficit. Generally, it is believed that agricultural income is not taxed. However, it is subject to three different forms of taxation under provincial jurisdiction: land-based tax, income-based tax, and ushr, an Islamic form of taxation on produce.

The land-based tax in the agricultural sector is levied on the area under cultivation. According to agricultural land statistics, approximately 89pc of farmers own less than 12.5 acres, exempting them from the land-based tax. These farmers collectively own 25.43m acres and cultivate 23.49m acres which are therefore exempt from the land-based tax.

Land-based tax applies to about 11pc of landowners, who collectively own 27.48m acres of land but, surprisingly, cultivate only 19.13m acres. That means there is a considerable amount of uncultivated land indicating potential inefficiencies or barriers to land use.

The ownership and tenancy of agricultural land are often complex and poorly recorded, making it difficult to accurately assess tax liabilities

Following the prevailing tax structure, land-based........

© Dawn Business