Dr. Hafeez Pasha has raised concerns over the underwhelming revenue targets set by provincial governments on agriculture income tax, despite the measure being a key condition of Pakistan’s ongoing program with the International Monetary Fund (IMF). Speaking on Aaj Television, Dr. Pasha highlighted that Punjab, the country’s largest province, has set a target of just Rs. 10 billion, whereas the potential revenue lies between Rs. 450 billion and Rs. 500 billion. This gap, according to him, exposes the depth of political resistance and elite capture that continue to undermine Pakistan’s fiscal reform efforts.
The agriculture income tax was introduced as part of Pakistan’s commitments under the IMF program, with legislation required from all four provinces by January 2025 and implementation scheduled to begin in July 2025. While the legislation was passed, the actual collection targets approved in provincial budgets were deliberately kept far below potential. Analysts argue that the understatement reflects political sensitivities, given the dominance of influential landowning classes in provincial assemblies.
IMF program documents from October 2024 had clearly emphasized the need for a “National Fiscal Pact” between the federal government and the provinces. This pact sought to devolve specific federal spending responsibilities to provinces under the 18th Amendment while enhancing provincial tax collection efforts. Among the highlighted measures were agricultural income tax for FY25, sales tax on services in FY26, and property tax reforms in FY26.
By May 2025, IMF’s first review report acknowledged what it described as a “landmark step” as provinces amended their Agriculture Income Tax regimes. These changes were meant to align provincial taxation with the federal personal income tax framework for small farmers and the corporate income tax regime for commercial agriculture. The new tax framework became effective from January 1, 2025, with liabilities for the second half of FY25 scheduled for collection in September 2025.
However, with the September deadline now approaching, Pakistan faces a credibility challenge. The IMF is expected to begin its second program review in mid-September, during which agriculture income tax will likely be debated. Provinces are expected to defend their low projections by pointing to crop devastation caused by recent floods, even though their budgets were finalized weeks before the natural disaster struck.
At the heart of the issue lies a constitutional constraint. The Constitution designates agriculture income as a provincial matter by excluding it from the federal tax domain. This prevents the federal parliament from legislating uniform farm income taxation similar to that imposed on salaried individuals. Historically, governments have argued that the lack of a two-thirds majority in parliament made constitutional amendments unfeasible. Yet, recent months have seen controversial amendments pass with relative ease, raising questions as to why this avenue cannot be explored to empower the Federal Board of Revenue (FBR) to oversee agricultural income taxation.
Economists and policy experts argue that provinces must be compelled to set realistic collection targets. Alternatively, a constitutional amendment could empower the FBR to collect agriculture income tax, either by including it in the divisible pool for onward distribution under the NFC Award formula, or by enabling FBR to collect on behalf of provinces against a nominal fee.
Without such decisive measures, Pakistan risks undermining both its fiscal stability and its commitments to international lenders. As Dr. Pasha and other experts point out, taxing agriculture income fairly is not only a matter of revenue mobilization but also of equity, ensuring that all income groups contribute proportionately to the national exchequer.
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