The Punjab government has taken the lead in amending its agricultural income tax law, bringing existing tax rates for individuals and businesses at par with federal income tax rates. The Punjab Agricultural Income Tax (Amendment) Bill 2024, which was passed by the provincial assembly on November 14, introduces sweeping reforms to modernize the agricultural tax regime in the province.

Key Highlights
The bill, amending the 1997 law, omitted exemptions given on farm income, while also taxing income from the livestock sector. Under the new legislation, several key changes have been made to the 1997 Act.

As per the legislation, the income generated from livestock owned by farmers is also considered "agricultural income" and shall be brought into the tax net. The income generated from livestock will also come under the tax net. The farmers with higher incomes will also face tax on income after the passage of the bill.

On November 14, the provincial assembly of Punjab passed the Agricultural Income Tax Amendment Bill, 2024, which removes all exemptions on agricultural income that will now be taxed. According to the bill, a super tax will be imposed on high-income farmers and landowners. The tax will also be imposed on the livestock sector, which will also be considered agricultural income.

Effective from January 1, 2025, the amendments aim at ensuring equitable taxation by incorporating income from both traditional agriculture and livestock, aligning the provincial system more closely with the federal tax standards.

The tax defaulters will also have to pay a total of 0.1 percent fine on their total income per day. Furthermore, the default surcharge rate has been revised to 12% or KIBOR plus three percent, whichever is higher, which aligns with federal financial standards and reinforces timely tax compliance.

Another change includes the modernization of language within the Act, with terms such as “assessee” being replaced by “taxpayer,” and phrases like “income year” and “assessment year” being updated to “tax year,” simplifying the tax code and ensuring consistency with other tax laws in Pakistan.

The amendments, as stated by the minister-in-charge, are designed to create a fairer agricultural tax system, particularly by including livestock income and adjusting tax schedules in line with federal standards.

The government aims for these reforms to ensure timely tax adjustments, smoother administration, and increased revenue from Punjab’s agricultural sector.

Analysis
The passage of legislation to impose agriculture tax in Punjab is a step in the right direction. It was exempted for decades because of obvious political reasons, as land-wielding classes were instrumental in arm-twisting any such attempt, and in collusion with tax officials, were able to manoeuvre whatever little levies they were supposed to pay on agrarian lands. The bill has come as an umbrella to effectively tax farm incomes, including livestock. Though this was done to fulfil one of the IMF conditionalities, it goes without saying that it was essentially desired to not only raise a lawful and entitled source of revenue but also to end the monopoly that the feudal component had enjoyed by remaining aloof from their share of liability towards the national economy.

The biggest riddle, however, is that the tax machinery in Pakistan is corrupt and officials do not have the capacity to assess proper revenue estimates from sources. The present Patwari-based revenue system has enough loopholes and operates in a world of whims and wishes of its own. The digitization of land, correct estimates of per-acre yield, the number of crops cultivated in two seasons, and now livestock data will be of essential importance to make the legislation a success. Otherwise, it will be like putting the cart before the horse and will be fraught with consequences.

Moreover, a super tax that will come into effect on high-income farmers with the abolition of the exemption on agricultural land will require some minute shadowing.

Agriculture accounts for 23% of the GDP, and is abysmally low in terms of tax-to-GDP ratio of below 1.0%. The bill has brought earnings from ‘commercial’ or ‘income-generating’ livestock into the tax net and scrapped exemptions on landholdings of less than 12.5 acres, and on absentee landholders. Introducing agricultural income tax rates for individuals and businesses on par with federal income tax rates is a great addition in the new law, and one hopes other provinces will also come up with their share in the national kitty. Balochistan, especially, is a treasure trove in livestock and rightful taxation there will be of great value.

Conclusion
Agricultural income has become a tool of evasion for those who obtain their income from other sources, such as industry. They show their profitable industry as making a loss, and declare the profits as agricultural income. Then there are large landowners, who do not pay any tax on substantial incomes, which leaves them sufficient surpluses to contest elections (thus saving political parties from having to put up the sums required to finance campaigns).

Thus, national and provincial legislatures have seen strong agricultural and industrial lobbies, which have prevented a proper agricultural income tax from being imposed.

It is not as if agriculture was untaxed. Going back to the Mughals, ownership (rather than income) was taxed in the form of land revenue. Once the primary source of income for the government, when it was finally abolished a few decades ago, it had been dwarfed by other taxes. Agricultural income tax was levied for the first time around then, using the same methods. Like land revenue, it was a tax on ownership rather than income. Under the bill, livestock is to be included. The government will have to consider whether the Revenue Department has the capacity to handle the taxation of income, which will ultimately involve the filing of not just returns but also expenditures, after which taxable income will be determined. Another danger will be corruption. There is no evidence that farmers are more moral than traders. It should be remembered that it is not a question of revenues, but of fairness.

There seems to be no reason for agricultural income to be exempt, except that farmers fill the halls of the legislatures. IMF pressure might not be a good reason for making the agricultural income more comprehensive.