August 10, 2023
Agriculture is one of the most common occupations of Pakistani people, especially the ones living in rural areas. Almost all of their monthly income depends on it. It is not the only thing that is dependent on agriculture. The agricultural sector contributes to a large percentage of the total tax collected by the Federal Board of Revenue.
All the major cash crops, such as cotton, and food crops, such as maize and wheat, depend on agriculture. In short, food, the primary source of life, depends on agriculture. Just like the government of Pakistan has imposed taxes on every good and service its citizens sell. Tax is what constitutes the government’s revenue.
This revenue is then used to build roads, railways, hospitals, schools, and other infrastructure. The government uses it for the betterment of the defense and armaments of the country.
Agricultural Taxation and National GDP
Last year, the agricultural sector contributed an estimated Rs 11.5 trillion to the national GDP. The total income from the agricultural sector across the country was approximately less than 3 billion. We can also conclude that it was 0.002 percent of the country’s total GDP. The Federal Board of Revenue collected more than rupees 1.7 trillion in income tax from the remaining GDP.
It roughly amounts to 5 percent of the GDP’s total manufacturing and services sector. Had the Federal Board of Revenue collected agricultural income tax at the same level, the government of Pakistan would have collected more than Rs 575 billion, which is 200 times higher than the current collection.
It’s been forever since Pakistani citizens have been ambiguous and confused about the rules and regulations regarding agricultural income. This is probably because a large percentage of these people efficient in agriculture belong to rural areas. They have less or almost no education.
Lack of education results in a lack of knowledge about federal laws related to agricultural income. However, the government can increase agricultural income tax in yield if it addresses the agriculturists about the federal laws. It can also introduce some minor reforms.
The Government of Pakistan acknowledges that many people who participate in agriculture do not have a very privileged background. Thus, imposing taxes on these citizens would be a huge burden.
Keeping this in account, the Constitution of Pakistan clearly states that agricultural taxation should be on the provincial level. It should be minimal. To know more about it, scroll through the article we’ve worked on so that you can be aware of everything about agricultural taxation in Pakistan.
The Payment of Agricultural Tax According to the Income Tax Ordinance of 2001
The most important law that involves and deals with the agricultural tax is the Income Tax Ordinance of 2001. The then-President Pervez Musharraf of Pakistan introduced this ordinance. It talks about all the necessary laws regarding tax, including agricultural income.
Taking this ordinance into account, every person involved with the agricultural sector and who derives income from it is exempted from paying tax to the federal government of Pakistan. But to say this is a complete exemption would be incorrect. Agriculturalists are still bound to pay taxes to the provincial governments, and the tax payable is much lower.
The government introduced this law to bring uniformity. Not all the provinces of Pakistan are equally fertile and suitable for agriculture. Some provinces, such as Balochistan and KPK, are very mountainous and have deserts and plateaus, which are unsuitable for agriculture.
On the other hand, Punjab contributes the most to the agriculture sector. Therefore, agriculturists are liable to pay income tax only to their provincial government instead of the federal government.
The Punjab Agricultural Income Tax Act of 1997
In Punjab, the taxation law that deals with the province’s agricultural sector goes by the name of the Agricultural Income Tax Act of 1997. The government of the then Prime Minister Nawaz Sharif introduced this act. Almost every other provincial law revolving around agriculture is similar to this.
This act clearly defines which income is agricultural income and which income is not agricultural income. According to this act, agricultural tax should be calculated and paid each year. This act introduced a one-year assessment time for tax calculation and payment.
Every year, on the 1st of July, this assessment period starts and ends on the 30th of June of the next year. This ordinance introduced two types of agricultural tax: land-based tax and tax on agricultural income. We have explained both for you below:
The Rule for Land-based Tax in the 1997 Act
According to this, agricultural tax only applies to the acres of land a farmer cultivates. The amount of tax is dependent on the acres of land that are irrigated or cultivated land. If one acre of cultivated land is not irrigated, then two acres of cultivated land would be counted as equal to one acre of cultivated land.
This generally means that the tax on unirrigated land is half the tax on irrigated land. According to this rule, if your cultivated land is less than 12 and a half acres, no tax applies, but if it exceeds this limit and is less than 25 acres, then the tax per acre of cultivated land would be Rs 300.
If the cultivated land is between 25 and 50 acres, then the tax per acre would be Rs 400 per acre. If the cultivated land is more than 50 acres, then the tax on it would be Rs 500. Also, if the orchards mature, the tax would be Rs 600.
The Rule For Tax on Agricultural Income in the 1997 Act
According to this rule, the FBR would assess the agricultural tax according to the annual agricultural income of the agriculturalists or cultivators. Certain limits are receding which would give you relief from paying any agricultural tax, and exceeding specific levels would impose a specific amount of agricultural tax upon you.
The FBR calculates the total taxable agricultural income after deducting allowances from the original income.
According to it, if your annual agricultural income does not exceed the amount of Rs 4 lacs, then no agricultural tax applies to you. If your annual agricultural income is between Rs 4 lacs and Rs 8 lacs, then the agricultural tax of Rs 1000 is applicable. Similarly, if your total income from agriculture is more than Rs 8 lacs but less than 12 lacs, then an agricultural tax of Rs 2000 applies to it.
If your total agricultural income is more than Rs 12 lacs and less than Rs 24 lacs, then 5% of the amount exceeding Rs 12 lacs would be payable as agricultural tax if your total agricultural income is more than Rs 24 lacs and less than Rs 48 lacs. Then an amount of Rs 60,000 plus 10% of the amount exceeding Rs 24 lac would be payable as agricultural tax.
Similarly, if your annual agricultural income exceeds Rs 48 lacs, you are liable to pay Rs 300,000. You are also liable to pay 15% of the amount exceeding Rs 48 lacs as agricultural tax to the government.
Collection and Assessment of Agricultural Tax
You may have known that the Federal Board of Revenue (FBR) assesses and collects all kinds of tax on behalf of the government of Pakistan, but this is not completely true. Agricultural tax is assessed and collected by the district collector assigned under the Punjab Revenue Act of 1967.
Each district of Pakistan has its district collector for agricultural tax. If a Pakistani citizen holds land in more than one pathway circle, they are to file a statement regarding the location of his land. The reason is to make sure that the FBR does not let go of anyone’s records unchecked. It should hold every citizen accountable for his land and the taxes that he owes upon it.
In conclusion to everything we mentioned regarding agricultural taxation in Pakistan, we hope all of your doubts are clear. We are sure you have the answers to your queries related to agricultural taxation now. Using this, you should have also gotten rid of your confusion. If the government introduces some reforms, it can improve the agricultural sector and the tax it earns.
The agricultural tax could be an important kind of income, yet usually, people don’t focus on it. As Pakistan aims to move towards the betterment of its economy, it must improve its tax-to-GDP ratio. It should address and work on all the flaws in the agricultural income taxation system. Such measures would help the country recover from the financial crisis and strengthen its economy.
A highly skilled tax consultant specializing in Pakistan’s intricate tax laws and regulations. With over a decade of experience in the field, he has helped countless individuals and businesses navigate the complexities of taxation. His expertise lies in optimizing tax strategies, ensuring compliance, and maximizing returns for his clients. John’s in-depth knowledge of Pakistan’s tax system and dedication to staying up-to-date with ever-changing laws make him a reliable and sought-after advisor. Whether it’s tax planning, filing, or resolving tax-related issues, clients trust John’s proficiency and commitment to achieving financial success while remaining fully compliant with the law.