Only “agricultural income” as defined in the Constitution falls within the legislative competence of the provinces, while all other activities of the agriculture sector (livestock, poultry, forestry, horticulture, cattle farming, fish farming, etc.) are under the jurisdiction of the Federal Board of Revenue (FBR). How much tax it collects from these activities is not made public by the FBR! Even the most informed ones in our media and so-called intelligentsia have no idea as to what constitutes “agricultural income” as per law and what its real tax potential is—Elite Capture and Tax Evasion: Pakistan’s Agricultural Income Tax Crisis, Friday Times, July 5, 2025.

On June 10, 2026, the federal government will present its annual ritualistic budget for fiscal year 2026–27. The International Monetary Fund (IMF) has already imposed revenue targets. As usual, the fiscal deficit is being cited as justification for additional taxation, and policymakers are searching for new ways to extract more funds from an already overburdened formal economy and people with lower and/or fixed incomes. The underlying assumption is that Pakistan suffers from inadequate taxable capacity. The evidence suggests otherwise.

The latest official tax expenditure report for fiscal year (FY) 2025 shows that revenue foregone through exemptions, concessions, preferential rates, credits, exclusions and special tax regimes was Rs. 2.435 trillion. The figure was deliberately understated (fudged!) by not including the general sales tax waived on petroleum products since March 1, 2022.

The impact of zero-rating sales tax was Rs. 1,795.764 billion. In FY 2024, tax expenditure was reported at Rs. 3,879.202 billion by including GST forgone of Rs. 1,257.513 billion on petrol and diesel. Why did the method of reporting change in FY 2025? It raises serious concerns for fiscal federalism vis-à-vis Article 160 of the Constitution. It is fiscal high-handedness to deprive provinces of their lawful constitutional right.

Previous articles in these pages have highlighted how successive governments have preferred taxing documented businesses, salaried individuals and consumers while leaving vast reservoirs of economic rent untouched and granting exemptions and concessions to the rich and mighty. The result is a fiscal system that penalises productive activity and rewards privilege.

No example illustrates this contradiction more clearly than agricultural rent in cash or kind. The moment agricultural taxation is mentioned in Pakistan, rational discussion usually ends. Large landowners present every proposal as an attack on farmers. Political parties retreat behind slogans about protecting agriculture. Governments choose expediency over reform.

The consequence is that one of Pakistan’s largest sources of economic rent remains largely outside any meaningful tax framework, while the burden of financing the state falls increasingly on those who earn their income through........

© The Friday Times