Sindh Cabinet’s Decision to Impose Tax on Agricultural Income – An Analytical Review
Abdul Ghafoor Sarohi
The Sindh Cabinet has recently decided to impose a tax on agricultural income, a move that is being viewed as a major shift in the country’s financial policies. Under the new tax policy, agricultural income up to six lac rupees annually will be exempted, while a maximum tax rate of 45% will be applied on agricultural income exceeding 56 lac rupees. Additionally, a “progressive super tax” has also been introduced, where no super tax will be levied on agricultural income up to 15 crore rupees, but a 10% super tax will apply to income exceeding 50 crore rupees.
Key Objectives of the Decision
The main objectives of this policy, as presented by the government, are to increase provincial revenue, bring the agricultural sector into the tax net, and regulate corporate farming. The Sindh Revenue Board (SRB) has been given the responsibility of collecting and managing agricultural income tax, with an announcement to provide modern technical facilities to create a “fully automated and transparent system.”
Impacts and Concerns of the Decision
This decision raises several questions and concerns:
1. Will agricultural income tax actually be collected? Pakistan has previously attempted legislation for agricultural income tax, but its implementation faced challenges. Due to opposition from large landowners, feudal lords, and political figures, it was difficult to effectively implement agricultural taxes in the past.
2. Will this decision place an additional burden on farmers? Although exemptions have been provided for small farmers earning up to six lac rupees, the 45% tax rate on large farmers could prove to be a heavy burden. If agricultural revenue conditions remain unfavorable, will this tax system lead to more challenges for these farmers?
3. Impact on corporate farming: With a 20% tax for smaller companies and 29% for large agricultural companies, what impact will this have on private investment in agriculture? Will this policy discourage agricultural traders and private investors?
4. Why has livestock been excluded from taxation? If agricultural income is taxed, why has the livestock sector been exempted? This sector could generate significant revenue, yet it has been overlooked in the policy.
Comparison with Past Attempts and Global Examples
Efforts to impose agricultural income tax have been attempted in the past, but due to the feudal political system, administrative inefficiencies, and strong opposition, these attempts were unsuccessful. In countries like India, the United States, and the European Union, there is a well-established agricultural income tax system that generates direct revenue for the government.
Expected Outcomes and Recommendations
This decision could be a “new beginning” for Sindh’s economic stability, but for it to be effective, the government needs to focus on the following points:
1. Establishing a transparent registration system for the agricultural sector: This will ensure that no one can falsely declare non-agricultural income as agricultural income to evade taxes.
2. Providing further relief to small farmers: Additional measures should be introduced to ensure that this policy primarily affects large landowners rather than small farmers.
3. Creating a more transparent tax collection system: The tax collection process must ensure that revenue is being generated from actual agricultural income, and not from other businesses.
4. Including other related sectors, such as livestock and trade of inputs, in the tax net: Livestock and other related sectors should also be taxed to create a more balanced tax system.
Overall, imposing a tax on agricultural income is a significant step by the Sindh government that, if implemented correctly, could increase provincial revenue. However, the success of this policy will depend on how effectively the government enforces it and ensures administrative capacity and transparency.
