Pakistan Can Earn Extra Rs. 65 Billion By Taxing Agriculture Income: Report

Applying tax rates on agricultural income similar to those imposed on other sectors can help Pakistan generate Rs. 65 billion per year, according to a report by Fredrich Ebert Stiftung (FES). Under IMF conditions, provinces are near imposing Agriculture Income Tax (AIT). Punjab Assembly has passed the AIT bill, while other provinces, including Sindh, Khyber Pakhtunkhwa, and Balochistan must still secure legislative approval for it. The report identifies a staggering Rs. 1.2 trillion tax compliance gap in the corporate sector, particularly tobacco, real estate, automobiles, tea, and pharmaceuticals. These sectors collectively evade taxes amounting to Rs. 310 billion as of 2021. At a roundtable on Pakistan’s National Tax Policy, Senator Saleem Mandviwalla criticized the tax system’s inequities. He lamented that the salaried class pays disproportionately higher taxes than sectors like retail and real estate. Former Senator Farhatullah Babar called for abolishing tax exemptions granted to military and civilian elites to ensure equity. The report also highlighted the regressive nature of taxation in South Asia. In Pakistan, corporate income tax contributes just 4.4 percent of GDP, while GST accounts for 3.4 percent. Despite a direct tax gap of Rs. 1,961 billion, only Rs. 1,655 billion of the Rs. 2,833 billion owed in corporate income tax was collected, leaving a 41 percent shortfall.