A recent report by Fredrich Ebert Stiftung (FES) reveals that Pakistan has the potential to generate Rs65 billion annually by taxing agricultural income at rates similar to those imposed on other sectors. The report highlights the pressing need to bring agricultural earnings under the tax net as the country aligns its fiscal policies with International Monetary Fund (IMF) requirements.
Based on 2010 data, the report notes that Punjab has taken a step forward by passing a bill for Agriculture Income Tax (AIT). However, the specific tax rates are yet to be finalized and notified through rules. Other provinces, including Sindh, Khyber Pakhtunkhwa, and Balochistan, are expected to follow suit as legislative processes are underway.
The report also sheds light on a broader tax compliance gap of Rs1.2 trillion in Pakistan’s corporate sector. Industries such as tobacco, tea, real estate, automobiles, and pharmaceuticals have been identified as significant contributors to tax evasion, which poses a persistent challenge to the economy.
Kate Lappin, Asia Pacific Regional Secretary for Public Services International (PSI), expressed concerns over privatization and called for a fairer taxation regime. She also referenced G20 discussions on taxing billionaires, highlighting Pakistan’s struggle with corporate tax evasion.
According to the report, Pakistan faced a corporate income tax gap of Rs1,178 billion in 2021. While Rs1,655 billion was collected, the potential revenue stood at Rs2,833 billion, indicating a 41% shortfall. Tobacco, tea, and real estate sectors were among the largest contributors to this gap.
The report criticizes South Asia’s largely regressive tax systems, pointing out that in Pakistan, the General Sales Tax (GST) accounts for 3.4% of GDP, while corporate income taxes contribute around 4.4%. It calls for urgent reforms to address these gaps and establish a more equitable tax framework to bolster Pakistan’s economic stability.
Samra Zulfiqar, a real estate analyst at Zameen.com, is passionate about finding projects that offer buyers the best returns. Her keen insights spotlight the market’s most promising opportunities.
