WHAT IS AGRICULTURE TAX IN PAKISTAN?

Agriculture is the backbone of Pakistan’s economy, contributing over 19% to the GDP and employing nearly 38% of the workforce. Despite its importance, the agriculture sector has long been criticized for its low contribution to the national tax base. To address this imbalance, provinces in Pakistan impose an agriculture income tax under the mandate of the Constitution, which categorizes agriculture as a provincial subject. This article provides a detailed overview of agriculture tax in Pakistan—its legal basis, rates, exemptions, compliance requirements, and challenges in enforcement.

What is Agriculture Tax?

Agriculture tax is a provincial tax levied on agricultural income, which includes income derived from cultivation of land, rent of agricultural land, or sale of produce from owned farmland. It is separate from the federal income tax regime and is administered by provincial governments through their respective boards of revenue or taxation departments.

Legal Basis of Agriculture Tax in Pakistan

• Constitution of Pakistan (1973) – Entry 47 of the Federal Legislative List excludes agricultural income, placing it under provincial domain

• Income Tax Ordinance, 2001 – Specifically exempts agricultural income under Section 41 and defines it under Section 111(1)(d)

• Provincial Acts:

  • Punjab: Punjab Agricultural Income Tax Act, 1997

  • Sindh: Sindh Land Tax and Agricultural Income Tax Act, 2000

  • KP: Khyber Pakhtunkhwa Agricultural Income Tax Act, 1993

  • Balochistan: Land Revenue Act and related notifications

Who is Liable to Pay Agriculture Tax?

Any individual or entity that:

• Owns or cultivates agricultural land

• Rents out agricultural land

• Earns income from sale of crops, fruits, vegetables, orchards, etc.

• Possesses land above the minimum threshold set by provincial laws

The tax applies to:

• Landowners

• Cultivators (in case of lease or tenancy)

• Corporate entities with agriculture as a declared activity

What Qualifies as Agricultural Income?

According to provincial laws and Section 41 of the Income Tax Ordinance, the following are considered agricultural income:

• Rent or revenue from land used for agricultural purposes

• Income from the sale of agricultural produce from owned or leased land

• Income from farm buildings or structures used for agriculture

• Profit from orchards, nurseries, and livestock (if land-related)

Types of Agriculture Tax

The agriculture tax is levied in two forms:

1. Fixed Land-Based Tax

   • Based on acreage or type of land

   • Usually calculated per acre depending on irrigated or unirrigated land

2. Income-Based Tax

   • Based on actual declared income from agriculture

   • Applied if income exceeds the tax-free threshold

   • Requires filing of agricultural income tax return

Agriculture Tax in Punjab

Governing Law: Punjab Agricultural Income Tax Act, 1997
Administering Body: Punjab Board of Revenue

1. Land-Based Tax

2. Income-Based Tax Slabs

Exemptions and Relief

• Income under PKR 400,000 is exempt

• Landowners with small holdings (below 12.5 acres) are typically not taxed

• Relief for flood-affected or disaster-declared areas

• Exemptions may apply for subsistence farmers

Agriculture Tax in Sindh

Governing Law: Sindh Land Tax and Agricultural Income Tax Act, 2000
Administering Body: Sindh Board of Revenue

1. Land-Based Tax Rates

2. Income-Based Tax

Sindh encourages voluntary declaration and penalizes non-filers with additional charges and notices.

Agriculture Tax in Khyber Pakhtunkhwa (KP)

Governing Law: KP Agricultural Income Tax Act, 1993
Tax Structure:

• Land tax ranges from PKR 100 to PKR 300 per acre

• Income-based tax is applied on declared agricultural income over PKR 400,000 at slab rates

• Exemptions for war-affected or disaster-impacted districts

Agriculture Tax in Balochistan

Balochistan does not have a fully developed income-based agriculture tax system. It mainly relies on:

• Fixed land tax under the Land Revenue Act

• Tax ranges from PKR 50 to PKR 200 per acre

• Efforts to modernize tax collection remain in progress

Filing and Payment Procedure

• Farmers earning above the exemption threshold must file agricultural income tax returns annually with the Provincial Board of Revenue

• Forms and procedures differ slightly across provinces

• Returns must include:

  • Land ownership documents

  • Details of crops, yield, and income

  • Water charges and input cost receipts (for deduction claims)

• Payment is made via:

  • Online portals (available in Punjab and Sindh)

  • Designated bank branches

  • Local revenue offices

Interaction with Federal Income Tax (FBR)

Agricultural income is exempt from federal income tax, but:

• Taxpayers claiming exemption under Section 41 of the Income Tax Ordinance must provide proof of agriculture tax payment to the provincial government

• Agricultural income must still be declared in the Federal Tax Return (IRIS)

• Non-declaration can trigger audits or rejection of exemption

Challenges in Agriculture Tax Collection

1. Weak Enforcement

• Many farmers do not file returns or pay taxes

• Lack of proper land and yield documentation

• Absence of audit or enforcement units in provincial revenue boards

2. Political Sensitivity

• Agriculture is politically protected due to land-owning elites

• Attempts to enhance tax collection often face resistance

3. Low Awareness

• Most farmers are unaware of filing procedures, exemptions, or benefits

• Limited digitization in rural districts

4. Lack of Integration with FBR

• Incomplete exchange of taxpayer data between FBR and provincial boards

• Loopholes in tracking wealth or income from agricultural sources

5. Data Gaps

• No centralized record of crop yields or market value

• Land records are not regularly updated, causing outdated assessments

How Agriculture Tax Affects Other Tax Obligations

• Taxpayers must prove agriculture income to claim exemption from federal tax

• Unreported income shown as agriculture without proof may be treated as concealed income under Section 111(1)(d)

• Agricultural income above thresholds must be included in Zakat and wealth tax calculations

Proposed Reforms and Policy Recommendations

• Digitization of land records through e-governance (Land Record Management Information Systems)

• Linking FBR and provincial systems for tax verification

• Introducing simplified filing portals and mobile applications

• Offering incentives and rebates for voluntary compliance

• Strengthening enforcement capacity of provincial boards

• Reforming tax slabs to better target large landowners without burdening small farmers

Role of Consultants in Agriculture Tax Compliance

Consultants help landowners and agri-businesses by:

• Assessing land-based and income-based tax liability

• Filing provincial agriculture tax returns

• Liaising with provincial departments for exemptions and dispute resolution

• Helping farmers document input costs and receipts

• Advising on tax planning and compliance with FBR declarations

How Sterling.pk Assists with Agriculture Tax

At Sterling.pk, we provide tailored assistance to:

• Agricultural landowners

• Agri-business investors

• Family farms and landlords

• Commercial farming ventures

Our services include:

• Provincial agriculture tax compliance and return filing

• Integration of agricultural income in federal tax filing

• Reconciliation for exemption claims with FBR

• Advisory on provincial tax audits and assessments

• Land tax due diligence for farm buyers or investors

Conclusion

Agriculture tax in Pakistan remains an underutilized source of revenue with significant untapped potential. While legally established under provincial jurisdictions, actual enforcement and compliance remain weak due to political, social, and administrative barriers. However, for landowners and agri-businesses, it is crucial to understand their tax obligations, especially when seeking exemption under federal tax laws. By working with professional advisors and staying updated on provincial regulations, taxpayers can ensure compliance, avoid penalties, and contribute to a more equitable tax system. Sterling.pk offers end-to-end support for agriculture tax compliance across all provinces in Pakistan.