Only Rs 4 billion of agricultural income tax is collected in Pakistan

Pakistan is collecting about Rs. 4 billion in farm income taxes instead of Rs. 150 billion, and it is necessary to create an environment that allows all shares to be taxed fairly.

This was the focus of the sixth webinar of the World Bank series 'Closing the Agricultural Tax Gap,' which was hosted by the Pakistan Development Policy Series 2021.

Experts stated that despite the huge agricultural base in Pakistan contributes substantially to the real economy and jobs, Pakistan's overall tax returns do not have the proportion of agricultural income tax in its real potential.

Minister of Finance and Health Khyber Pakhtunkhwa (KP) Taimur Jhagra; Farmer and Co-founder of the Republic of African Development, Dr. Hanid Mukhtar; former World Bank Senior Economist and CDPR Fellow; Dr. Tariq Bajwa; former Federal Government President of Finance, Revenue, and Economic Affairs;

The session was co-chaired by Nagy Benhassine, Country Director of the World Bank for Pakistan, and Dr. Ijaz Nabi, President of the CDPR, and Country Director of Pakistan's International Growth Center.

Minister Jhagra said the KP Government took audacious actions to raise the revenue base and decrease the tax rates efficiently in many locations or to get people in the tax system to improve their faith.

He added that in two years, provincial income from taxes rose from Rs 30 to Rs 56 billion (Rs. 30 billion to Rs. 42 billion in the first year, and Rs. 42 billion to Rs. 56 billion in last year). In recent years, the average revenue increase was less than five percent a year. It was not even stronger. In the previous two years, it has now attained 75% and about 35% every year.

Minister Jhagra remarked that the previous tax reforms of the Service Sales Task Authority (KPRA) for Khyber Pakhtunkhwa had been helping to boost tax collection and attempted certain things in this year. The government has been doing a lot of work. He said that the government has taken action in the farming sector, the first of which has been to zero land tax.

He added, "Effectively, a minimal land tax payment was paid to the national exchequer by Rs. 70 million. We dropped this to zero and that implies that small farmers no longer have to worry about patwari.'

"The second step they took was to limit the agricultural income tax exemptions from Rs 0,4 million annually to Rs 0,6 million with Federal Revenue Board (FBR) income tax laws to other income tax payments. The third part is to be credited, between 40,000 and 100,000 in the province, to report their agricultural income tax, to compute income and costs for agriculture, and to restore the spirit of farming income tax," he said.

Minister Jhagra added that this was done in the budget and work is now being carried out beyond the budget, to make it practical.
"We're not only going to raise our agricultural tax. We don't know if tax potential is linked to agricultural GDP since land ownership is limited across Pakistan, somewhere between 95 and 98 percent of agriculture, and we have very small farmers who do indeed cultivate, who sustain families," he said.

He underlined that they do not do it for tax potential, but mostly because it is right, and the concept is that if income tax is to be treated as income tax, it should be treated as income tax.

Dr. Tariq Bajwa stated the present income tax collected in agriculture is a peanut as compared to a potential Rs. 150 billion for agricultural income tax. "It's Rs. 3-4 billion that we collect in the industry," he noted.

Equity requires all revenue to be taxed equally and that, if equity is not taxed equally, tax avoidance and tax evasion loopholes are formed within the tax system.

Dr Bajwa stated that in national and provincial assemblies the agriculture lobby is powerful and dominating, and it is difficult to change or enact legislation. He said that the customs duty is around 20% of all the taxes paid by agriculture, including sales tax, so they pay taxes but just the part of the farm's income is not paid.

Agriculture contributes 19.2% to GDP, however, the agricultural sector's contribution to GDP was less than seven%. He said that the regulations relating to agricultural income tax only apply to land farmed, and the subsector livestock is thus the greater contribution to the agriculture industry.

Dr. Bajwa added that the overall agricultural sector contribution to Pakistan's GDP is close to around Rs 3 trillion. "We speak about 7% of 19.2% of the contribution to the agricultural sector from Rs. 1,200, to Rs. 1,300 billion, and around 35-40% of farmers in the whole area should have to be taxed," he added.

"There should be tax collection of Rs 120 billion and Rs 180 billion at 15 percent, therefore the tax potential is around Rs 150 billion, but we are recovering around Rs 3 billion," he said.

Dr. Bajwa added that the FBR has begun information sharing with the provinces, at least with the Punjab, which has reported income tax on farming too. He added further that national Identity Cards do not support the land record and that it is impossible to find the breakdown.

He said taxation equitably is a matter of creating a sector-compliant environment that is the norm, or an excuse for one sector.

Nabi says farming offers job opportunities and is a major economic component, but it has not been a major contributor as envisaged as a revenue basis. For many reasons, but there is over Rs 70 trillion of potential, the total tax collection remains modest.

"It might be a substantial chunk of spending if we were to collect all Rs. 70 billion. The income tax was not considered standard. It's more about land taxation. The provinces may not have the skills to collect the income tax properly," he added.

Benhassine tweeted that Pakistan's portion of agricultural income tax is barely 0.06% of GDP and that agricultural income tax is below its real potential. He also said that agricultural income tax may be a significant source of money for an agriculturally dependent economy.

Post a Comment

Please do not enter any spam link in the comment box.