The five-day negotiations between Pakistan and the IMF delegation were completed last week, in which the most important thing is that the federal government has assured the International Monetary Fund to impose tax on agricultural income in the provinces from January 1 next year. The IMF has also been guaranteed the arrangement of financial cooperation from the friendly countries and the condition of the budget surplus of the four provinces has also been fulfilled, while the IMF delegation has demanded strict implementation of the conditions on the government. 

It has emphasized to accelerate efforts to meet the tax target of 1,970 billion rupees. Undoubtedly, Pakistan's economy can get rid of the debt quagmire only if our income exceeds the expenditure, while our expenditure has more or less exceeded the income in every period due to which the debt burden of the country is increasing and Debts are also being repaid by taking more loans. To get out of this dilemma, it is necessary to stop all the unnecessary expenses and increase the income. Economically self-sufficient countries are driven by taxes imposed on the income of the citizens, but in our country, except for the salaried class, people from most walks of life are either completely outside the scope of taxation or nominally pay taxes compared to their real income.   Among these sectors, agriculture is particularly noteworthy. The share of agriculture in the national income is at least 20 percent and according to some sources up to 24 percent, but the share of this sector in the total tax revenue of the government is barely 0.1 percent.

Other sectors largely outside the tax net include retailers, transporters, real estate etc. According to a research report of Pakistan Economic Development Economics, in the fiscal year 2022, all the provincial governments collected the total agricultural income tax of only 2.4 billion rupees, although the potential of the agricultural sector is up to 800 billion rupees and if the proper collection of this tax by the provinces is done, the overall financial deficit of the federation can be significantly reduced. This can also improve the tax-to-GDP ratio, which has not gone above 9 percent so far, while it is 13 percent for economic recovery. It is necessary to be more than.  Since agriculture is under the provincial government after the eighteenth amendment, it is also the responsibility of the provincial governments to collect tax on agricultural income. But it has not been implemented, the main reason being the dominance of big landlords and landlords in the legislative bodies and influential classes, who continue to frustrate every such attempt with their connivance.  However, now full collection of income tax from all sectors outside the tax net including agriculture is indispensable for our national survival and security. By ensuring the inclusion of lakhs of new people among the taxpayers, it will be possible to significantly reduce the tax rate for all taxpayers including the salaried. Instead of threats of punishment for tax collection, provision of various facilities to tax payers like developed countries can be more helpful in increasing the tax net. Along with ensuring tax collection from agriculture, trade, transport and other sectors, it should also be ensured that the entire burden is not shifted to the common consumer by increasing the prices of goods and services.  Eradication of corruption, digitization of the entire system, reduction of government expenditure to the last possible extent and closure of elite privileges are also necessary for economic improvement. This seems to be the situation. According to the terms of the IMF, the collection of agricultural tax will start from January 2025. The Punjab Assembly has approved the Agriculture Tax Bill. However,  some deteractors say that this tax is no less than an economic disaster for the agricultural sector of Pakistan because Pakistan is one of the agricultural countries where farmers are constantly suffering from misery. Where wheat is often imported from outside. Agriculture was already destroyed, it has been further destroyed by imposing agricultural tax, the critics say, while the farmers associations say that they are planning a nationwide protest against agricultural tax.

Recognizing the importance of agriculture, some countries have adopted policies that exempt the sector from direct taxation, with the aim of accelerating growth, protecting farmers and encouraging agricultural investment. Like India where agriculture is exempt from federal income tax under the Income Tax Act of 1961.

This exemption is based on historical and economic considerations, recognizing the important contribution of agriculture to the Indian economy. Although state governments have the power to levy agricultural taxes under the Constitution, most states do not levy agricultural taxes for political and practical reasons. An attempt was once made to impose an agricultural tax in India, but the protests were so terrible that the government had to withdraw its decision. Agriculture tax in Pakistan should not have been imposed until the farmer was enabled to pay the agricultural tax. This agricultural tax will surely make food and drink more expensive. Inflation is already at its peak in Pakistan. New Zealand, known for its innovative agricultural sector, also has no tax on agricultural income but significant exemptions and incentives for agricultural investment, sustainability projects and innovation. Countries like Saudi Arabia, United Arab Emirates, and Qatar also do not impose agricultural taxes. These nations focus on food security and encourage farming practices through subsidies and incentives. Apart from this, there is no agricultural tax in Kenya, Burma etc. Countries that provide a lot of facilities to their farmers do tax, but the agricultural tax rate is the lowest in the world. Especially in developing countries, where farmers often face unstable markets, unpredictable weather, and limited access to resources. Tax exemptions help them retain more income to reinvest in their farming activities. Many governments prioritize food production and self-sufficiency, ensuring that farmers are not overburdened with taxes that could discourage agricultural activity. In countries where a large part of the population is engaged in agricultural work, tax exemptions are seen as a way to improve the livelihoods of rural communities. Tax breaks can encourage farmers to adopt modern farming methods, invest in infrastructure and adopt sustainable techniques. Critics of agricultural tax breaks argue that governments forego potential tax revenue that could be used for public services. In some countries, wealthy landowners or large agricultural enterprises benefit disproportionately from these smallholdings. Over-reliance on tax exemptions can sometimes lead to inefficiencies or discourage income diversification. Countries that exempt agriculture from taxation aim to promote farming activities, ensure food security and support rural livelihoods. Although these policies are well-intentioned, their effectiveness depends on proper implementation and addressing related challenges. For nations trying to develop their agricultural sectors, it is important to balance tax incentives with broader economic objectives, but agricultural taxes in Pakistan are only been imposed under pressure from the IMF. If the government feels that this tax is compulsion then it should give free market to the farmers, they should get electricity and diesel at low cost, subsidy on fertilisers, seeds and pesticides should also be provided. There should be no restriction on import of all kinds of seeds from outside.

Published in The Daily National Courier, November, 21 2024

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