THE government has addressed a major anomaly in the taxation framework by harmonising the tax rates on agricultural income. All provinces have amended their regimes to fulfil the International Monetary Fund`s (IMF) commitment, removing a potential irritant ahead of the $7 billion Extended Fund Facility review. However, experts remain sceptical about any significant boost to revenue mobilisation from these changes.

In the absence of a reliable valuation record of agricultural land, tax liability will depend on income declaration by farm owners. However, tax authorities lack the capacity to verify the accuracy of these self-declarations. If the majority report net incomes below the taxation threshold, the Federal Board of Revenue (FBR) and its provincial counterparts already ineffective in documented areas of economic activity may collect revenues that fail to justify the public expense incurred in collection efforts.

Moreover, this is not the government`s first attempt to implement equitable taxation across all incomegenerating sectors. Similar efforts in the past have largely failed to deliver.

It would have been more effective if the federal and provincial governments had analysed these past experiences and addressed issues that led to the failure of earlier attempts to tax agriculture income.

For instance, during the General Musharraf-Shaukat Aziz period in the 2000s, an extensive initiative managed to collect just over Rs2bn in a year from a sector that accounted for 24 per cent of Pakistan`s economy and employed nearly half the country`s workforce.

`This is what happens when amendments to the taxation regime are driven not by intent to create a fair system or tap an overlooked revenue source but by the need to quickly appease the creditor that the government cannot afford to alienate.

Understanding the motivation behind such moves is key to evaluating their merits.

`Frankly, I don`t believe either the federal or provincial governments are genuinely committed to making the taxation regime equitable by effectively taxing agriculture income.Politically, they cannot risk alienating the rural elite, which holds significant influence in both federal and provincial assemblies. These amendments conveniently serve dual purposes: they align the taxation regime with the IMF requirements while safeguarding the interests of the farmland-owning class,` remarked a disgruntled observer.

Officials from the federal and provincial tax authorities, along with some tax law practitioners, have voiced support for the new legislation.

`This is a long-overdue step in the right direction. Dismissing the government`s effort based on preconceived biases is unfair. Taxing agriculture income has been a long-standing demand, not just for the IMF but also for the corporate sector.

Implementation may be challenging, but it`s not impossible if the federal and provincial governments prioritise capacity building of the relevant authorities,` argued a senior tax lawyer in Lahore.

Dr Wasif Ali Memon, Chairman, Sindh Revenue Board (SRB), responded to a query, `The recently passed legislation by the four provinces will significantly contribute to growing provincial tax revenues and help Pakistan meet a key IMF conditionality. Under the national fiscal pact, Sindh`s law aligns agriculture income tax rates with the Federal non-salaried personal and corporate tax rates.

`Unlike other provinces, Sindh has completely revamped its old 2000 Tax law and introduced a new act with rules tailored to current needs while supporting the agriculturists. The focus is on e-filing and automated payments to enhance efficiency and transparency. The goal is to boost tax collection and make compliance easier for taxpayers. Data sharing with the FBR will serve as the cornerstone of this new methodology to prevent income concealment and tax evasion.

`The legislation divides the financial year 2024-2025 into two halves: the previous rates apply to agricultural income earned up to December 31, 2024, while the new rates apply from January 1, 2025. This phased implementation makes it challenging to accurately estimate the tax potential for the current fiscal year. However, the SRB is committed to meeting the provincial government`s targets efficiently,` he stated.

Some retired FBR officers expressed con-cerns about the effectiveness of the new agriculture income tax laws based on their experience. Rehmatullah Wazir, a former member of the FBR, dismissed the new laws with scepticism. `In a country where the tax machinery struggles to collect from formal sectors, where activities are recorded and relatively easier to track, expecting it to collect taxes from a sector where transactions are cash-based and nearly impossible to trace is, to put it mildly, unrealistic,` he remarked.

`In my opinion, a fixed tax based on the size of water-fed cultivable land is the only viable solution at this point. Even a modest tax of Rs10,000 per acre could yield close to Rs100bn for the exchequer. The real challenge, however, is the strong influence of the landed elite, which is unwilling to enter the tax net, plain and simple,` Mr Wazir added. •