For years, agriculture has remained a largely untapped sector in Pakistan’s tax system, despite its significant contribution to the economy. Recent developments, particularly the inclusion of agricultural income in provincial tax frameworks, mark a major shift in fiscal policy. However, questions remain regarding the taxation of livestock, inconsistencies in provincial laws, and the challenges of implementation. As the government moves forward with these reforms, ensuring clarity, transparency, and efficiency will be key to their success. 

With Sindh and Balochistan officially bringing agricultural incomes under taxation on February 3, all provinces have now complied with IMF requirements to ensure fair taxation of this crucial economic sector. The move is expected to boost revenue, widen the tax base, and enhance fiscal stability. 

The government, working alongside provincial authorities, aims to generate an estimated Rs300 billion from agricultural income tax. Additionally, provinces will overhaul their General Sales Tax (GST) framework, shifting from a positive list to a negative list system in the 2025-26 fiscal year—an approach designed to curb tax evasion. As part of broader revenue-boosting efforts, authorities are also targeting corporate taxes in the agricultural sector and GST on services, alongside plans for a unified property taxation system. Administrative reforms will be introduced to improve tax compliance, particularly in GST collection. 

Starting in January 2025, the new law will align agricultural income tax rates with federal personal and corporate tax structures. Farmers earning up to Rs600,000 annually will be exempt, while those earning over Rs5.6 million will face a maximum tax rate of 45 percent. Additionally, a progressive super tax will apply to incomes exceeding Rs150 million. Notably, corporate farming has now been incorporated into the tax net. 

Punjab was the only province to meet the IMF’s deadline of December 31, 2024, for passing agricultural income tax legislation. Unlike Sindh, which limited the definition of agriculture strictly to farming, Punjab’s law also included livestock under its tax scope. However, this led to a conflict with the federal government, which claimed livestock taxation fell under its jurisdiction. 

Interestingly, Sindh’s exclusion of livestock from its tax law appears to align with the federal government’s stance, suggesting it may have made the adjustment to avoid conflict. This situation highlights an ongoing contradiction—despite the federal government’s long-standing argument that it cannot tax agriculture because it is a provincial matter, it continues to assert authority over livestock taxation.

If the federal government has always considered livestock a federal matter, why hasn’t it taken steps to tax this sector appropriately? Livestock production spans a wide range of activities, including milk production and sales, meat processing, and the trade of live animals. These industries contribute significantly to the economy, making it essential for the Federal Board of Revenue (FBR) to clarify its stance. Should provinces—especially Punjab, which has already included livestock in its agricultural tax framework—take on the responsibility of taxing this sector, or does it fall strictly under federal jurisdiction? 

Punjab’s farm tax law also presents another unique aspect. Unlike other provinces, Punjab’s legislation does not specify tax rates outright but instead delegates this authority to executive rule-making. This approach may have been a strategic decision, as securing approval for a law with fixed tax rates could have faced resistance. However, granting the executive unchecked authority over tax rate adjustments, without clear legislative oversight, raises concerns about transparency and the potential for arbitrary decision-making. Addressing these issues should be a priority for the provincial government. 

Beyond these legal and jurisdictional matters, provinces also face practical hurdles. Accurate digitization of land records is crucial for fair taxation, helping to reduce tax evasion and ensure precise tax assessments. Strengthening the skills and resources of revenue officials is equally important to manage large-scale tax collection efficiently and improve overall enforcement. 

With Pakistan’s fragile fiscal situation, an uneven tax burden on a few sectors, and a low tax-to-GDP ratio, taxing agriculture—one of the country’s most vital industries—was long overdue. Expanding the tax net to include this sector is a critical step toward sustainable revenue generation and economic stability. One can only hope that the recent measures taken by provincial governments will encourage broader economic participation and lead to a more balanced and resilient fiscal future.

Bringing agriculture into the tax net is a long-overdue step toward a more equitable and sustainable revenue system. While recent legislative efforts signal progress, unresolved jurisdictional issues, administrative hurdles, and the need for greater transparency remain challenges. If effectively implemented, these reforms have the potential to broaden economic participation, reduce reliance on a narrow taxpayer base, and contribute to the country’s long-term fiscal stability.