The International Monetary Fund (IMF) has requested that Pakistan impose a 45% tax on agricultural income as part of discussions for a new bailout package. The global lender has proposed a significant revision of tax rates on agricultural earnings during negotiations,
According to a Tribune Pakistan report, the IMF’s demand entails provincial governments amending their legislation to enforce an income tax rate of up to 45% on agricultural revenues, a sector that, despite constituting 24% of the economy, contributes a mere 0.1% to total tax receipts.
Under the constitution, the taxation of agricultural income is a provincial matter, with the federal government prohibited from levying such taxes. The IMF has suggested that provinces align their tax rates with those imposed on non-salaried business individuals to navigate this constitutional constraint.
Furthermore, the IMF has established a deadline of October 2024 for provincial governments to enact these changes. It also demands the termination of existing income tax exemptions for the livestock sector by October this year.
The World Bank has estimated that these measures could potentially enable Pakistan to raise up to 1.22 trillion rupees in tax revenue from the agricultural sector, amounting to approximately 1% of the national Gross Domestic Product (GDP). According to the IMF’s conditions, all four provinces must overhaul their agricultural income tax systems.
The conditions also stipulate that the income tax rates applicable to corporate farming will align with corporate income tax levels, requiring provincial governments to eliminate any existing tax exemptions on livestock income by the end of October.
