ISLAMABAD:
The Sindh government has deferred the implementation of up to 45% agriculture income tax for one year and restored the old low rate of 15% on the ground that new rates cannot be enforced with effect from January this year.
The restoration of the old rate means that the agriculture sector, which has one-fourth share in the national economy, will hardly contribute a few billion rupees in income tax. Compared to this, revised calculations showed that the salaried class paid Rs575 billion in income tax in fiscal year 2024-25.
Sindh Governor Kamran Khan Tessori promulgated an ordinance to defer the collection of agriculture income tax at new rates for one year. However, a senior official of the Sindh Revenue Board said that the provincial government just followed in the footsteps of Punjab, which has already deferred new rates through a notification last month.
The Sindh Agriculture Income Tax Amendment Ordinance 2025 was promulgated on Tuesday but with effect from January 1, 2025.
All provincial governments had entered into an agreement with the federal government and the International Monetary Fund (IMF) to enforce these rates from January 2025 and start collecting the tax at new rates from July this year.
But a critical amendment has been made through the ordinance, which nullified the IMF-agreed income tax rates and revived the old rates ranging from 5% on annual income of over Rs1.2 million to just 15% on annual income above Rs4.8 million.
It is not clear whether the IMF and the World Bank are on board. But Pakistani authorities said that the provincial governments were constantly in touch with both lenders about the practical difficulties in enforcing the new rates. However, such practical difficulties are often not considered when it comes to the salaried class.
“We just followed the Punjab Board of Revenue, which restored the old rates through a notification last month,” said the senior taxman from Sindh.
Agriculture income tax is a provincial subject and the provincial governments have long been delaying the collection of due taxes due to the influence of landlords in provincial assemblies.
Agriculture income tax reforms, requiring the alignment of provincial tax rates with the federal rates, have been dubbed as a success by the IMF. According to the Extended Fund Facility of 2014, “the provincial tax reforms will include the full alignment of their agriculture income tax regimes with the federal personal and corporate income taxes by October 2024 with implementation from January 1, 2025 and collection in July 2025”.
Programme documents stated “each province will begin the taxation of agricultural income under this new regime from January 1, 2025, with collection for the second half of FY25 agricultural income in July 2025”.
But the provincial authorities said that there were practical difficulties in enforcing the higher rate of 45% from the middle of the fiscal year, ie, January 2025.
The Punjab government on September 10 also issued executive orders to all deputy commissioners and instructed them that the “new tax rate shall be applicable for assessment with effect from July 2025”.
This means that the new income tax rate will apply to the income earned on and after July and its return will be due in September 2026. The Sindh amendment ordinance states, “Notwithstanding anything contained in this Act, the rate of agriculture income tax applicable for the period commencing on the 1st day of January 2025 and ending on 30th day of June 2025, shall be those prescribed under the Sindh Agriculture Income Tax Ordinance, 2000”.
The Sindh government made another amendment to delay the enforcement of the new agriculture income tax rates. The new amendment says “for the words 1st January 2025, the words and figures 1st July 2025 shall be substituted”. With this, the IMF-agreed rates have been delayed for one year.
Now, the farm owner will not pay any income tax on the annual income of Rs1.2 million. This no-tax ceiling for a salaried individual is just Rs600,000.
There will be 5% income tax, if the agriculture income is Rs2.4 million annually. The federal individual income tax for this threshold is 30%. Likewise, a farmer in Sindh will now pay 10% tax on the annual income of Rs4.8 million. The federal government charges 40% tax on the income of Rs4.8 million.
The Sindh farmer will pay 15% tax on the annual income of over Rs4.8 million while the maximum rate of the federal government is 45% plus 10% surcharge.
The Sindh government has also obtained the right to amend the income tax rates in future without amending the law again, while following the Punjab government.
Instead of giving the right to tax to the provincial assembly, the Punjab government has retained this right and changes rates through simple executive orders, which undermines parliamentary democracy.
The new amendment says “the government may by notification in the official gazette, amend the schedules, at any time during a financial year, subject to the condition that the notification shall be laid in the provincial assembly of Sindh at the time of presentation of the annual budget for the next financial year”.
Not only that, but it has also obtained the legal right that it can issue the notification of change in income tax rates “effective from any previous date specified in the notification”.
