In a major policy decision, the Sindh cabinet approved the Agricultural Income Tax Bill 2025, a landmark move aimed at bringing the agricultural sector under the tax net. The bill, which will take effect from January 2025, marks a significant shift in taxation policy, as announced by Sindh Chief Minister (CM) Syed Murad Ali Shah.
This initiative brings agriculture taxation in line with other income-generating sectors, ensuring a more balanced tax framework.
- Exclusion of the Livestock Sector: One of the most notable provisions of the bill is the exclusion of the livestock industry from the tax framework.
- Adjustments for Natural Disasters: The bill makes provisions for tax adjustments in case of natural calamities, ensuring that farmers do not face undue financial burdens in difficult circumstances.
- Penalties for Concealing Cultivated Land: To ensure compliance, the government will impose fines on landowners who underreport their cultivated land.
The Sindh cabinet also raised concerns over the lack of consultation with the provincial government before negotiations with the International Monetary Fund (IMF).
Government's Concerns and the Role of the IMF
The IMF has long advocated for the imposition of agricultural income tax as part of its broader economic restructuring strategy.
Experts estimate that Sindh can generate up to Rs300 billion annually through the agricultural income tax.
However, there are concerns regarding the economic impact of the tax on food prices. CM Murad Ali Shah warned that introducing taxation in agriculture could lead to increased prices of essential commodities such as:
- Vegetables
- Wheat
- Rice
- Other staple grains
Given that agriculture is a key economic sector in Sindh, the taxation policy could lead to inflationary pressures on food items, impacting both farmers and consumers.
Sindh is not the first province to consider implementing agricultural income tax. Punjab and Khyber Pakhtunkhwa (KP) have previously introduced similar policies, though implementation has remained inconsistent. Key observations include:
- Punjab’s agricultural tax framework has faced compliance challenges, with only a small percentage of farmers paying taxes.
- KP’s taxation model includes exemptions for small farmers, ensuring that only large landowners bear the tax burden.
- Balochistan has been slow to introduce agricultural taxation, largely due to its reliance on a tribal governance structure.
While the Sindh government is keen to enforce agricultural income tax, several challenges remain:
Farmers’ associations and large landowners have historically opposed taxation on agricultural income, citing:
- High input costs (seeds, fertilizers, and irrigation expenses)
- Weather-related uncertainties
- Unstable market prices for agricultural produce
The Sindh Revenue Board (SRB) will need to establish strong mechanisms to prevent tax evasion and underreporting of land usage.
