The agriculture, which is the largest income
generating segment of Pakistan's economy, continues to enjoy freedom
from federally administered income tax on the pretext that taxing
agriculture is a provincial subject.
The Punjab government in a bid to find ways to
shape the income generated by the agriculture under the domain of
income, has decided to replace the flat rate of agriculture Income Tax
with the income-based Income Tax mode of collection.
If the provincial government of Punjab succeeds in
its reform based initiatives, the huge agriculture sector besides
contributing more revenues in future would set a good example for
other federating units to bringing the agriculture income into the tax
The proposed plan would enable the Punjab
government to impose more agriculture income tax on the big landlords
and affluent farmers, whose annual income is much greater than the
At present the provincial government is charging a
fixed rate of agriculture tax that is based on the size of land —
Rs150 per acre for the agriculture land exceeding 12.5 acres and not
exceeding 25 acres and Rs250 per acre on agriculture land beyond 25
acres. But the provincial government is in the process to start a
major exercise of changing the flat rate of agriculture tax with
income-based mode of tax.
"We have given a target to the Punjab Revenue
Board to make arrangements gradually to replace the existing fixed tax
with the income-driven mechanism of tax," Punjab Minister for
Finance Sardar Hasnain Bahadur Dareshak told this scribe.
He said that the board had been asked to complete
the required process within three years, starting from the coming
He further said that the board had also been asked
to prepare the record of those landholders, whose agriculture land is
adjacent to the canals and rivers as their income is much better than
those, whose are located at the tail-end.
The Punjab Finance Minister further said that the
landlords and farmers, who grow major cash crops, should be taxed more
"I believe that the income of the growers of
major cash crops and those who are close to the water channels is much
higher than other farmers and they should pay tax according to their
income and not on flat rate of tax," added the minister.
He said that the proposed change in the mode of
agriculture income tax is part of the provincial government's strategy
to enhance tax revenue to generate more resources in future and to
minimize dependence on the National Finance Commission (NFC) award.
The minister also pointed out that in 2004-05 the
target of agricultural tax collection had been set at Rs1.16 billion
as against previous year's target of Rs1.03 billion.
It is learnt that during July to December this
fiscal, total agriculture income tax revenue stood at Rs265 million
— Rs230 million in Punjab, Rs8 million in Sindh and Rs26 million in
NWFP. The agriculture tax in Balochistan had not been enforced due to
the backwardness of the province.
In 2003-04, the agriculture tax revenue of the
three provinces amounted to Rs886 million — Rs623 million in Punjab,
Rs218 million in Sindh and Rs44 million in the NWFP province.
In Pakistan, total land area is about 803,940
square kilometers out of which nearly 22 million hectares are under
cultivation. Around 70 percent of the cropped area is in Punjab,
followed by 20 percent in Sindh, less than 10 percent in the
North-West Frontier Province, and only 1 percent in Balochistan.
The statistics show that the Punjab province has an
enormous potential of revenue generation in case the flat rate of
agriculture income tax is replaced with the income-based mode of tax
The significant move of re-shaping tax on
agriculture income however seems a step in conformity to the
guidelines provided by the multilateral donors who have strongly
recommended enhancing revenue collection, reducing subsidies and
public sector losses, increase public sector development program and
increase funding to the provinces under the National Finance
Pakistan would have to increase its tax collection
and reduce subsidies and losses of the public sector enterprises,
particularly in WAPDA and the KESC if it wanted higher and sustainable
The donor agencies including World Bank and the
Asian Development Bank have asked the financial managers in Pakistan
to set a more ambitious target of tax collection and further reforms
in power sectors is the need of the hour.
Through the devolution plan, the public services
efficiency should be enhanced at local level, the international
lenders suggested. It is important that public services should be made
accountable. The decision of Pakistan to leave IMF program was
appreciated by them, however, the relationship would continue as IMF
would continue reviewing Pakistan's economy and offering technical
assistance in monetary and fiscal reforms.
The multilateral agencies while supporting the PRSP
approved by the Pakistan government have said that it has provided
solid framework for future reforms.
There would be a great need to enhance both public
and private investment while maintaining fiscal stability. They have
also appreciated the peace steps with India and described it as a
welcome sign for the economy, however, continuity of economic policies
and a further cut in debt is desirable.