Working Paper Posted March 09, 2016
Written by Hanid Mukhtar & Anjum Nasim


The issue of ineffective agricultural taxation was raised in the National Finance Commission (NFC) at the time of the 7th NFC Award and is likely to be debated before the next award as well. The 7th NFC Award stated that “Provinces would initiate steps to effectively tax the agriculture and real estate sectors.”

In practice, some half-hearted attempts were undertaken to make AIT more effective. In the run-up to the Punjab annual budget for FY2014, proposals were considered for a withholding AIT and for amending the Punjab Agricultural Income Tax Act 1997 (Government of Punjab 2013) to extend the scope of compulsory submission of income tax returns to farmers cultivating 25–50 acres of irrigated land. (This requirement had thus far applied only to farmers cultivating more than 50 acres of irrigated land). While the Punjab budget of FY2014 did not introduce amendments along these lines, the budget speech did promise to enforce PAITA 1997 more effectively. This stricter enforcement was expected to increase agricultural tax collection in Punjab from Rs0.86 billion in FY2013 (revised budget estimates) to Rs2.02 billion the following fiscal year. However, the revised estimate of agricultural tax collection in FY2014 was only Rs0.83 billion, almost the same level as the previous year.

The constitutional provisions that allow provinces to tax agricultural incomes and the federal government to tax all other sources of income have allowed disparate tax treatment of income on the basis of its source. This not only creates inequities but also promotes tax evasion.

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