Pakistan has the potential to generate Rs65 billion annually by applying the same tax rates on agricultural income as those imposed on other sectors, according to a recent report released by Fredrich Ebert Stiftung (FES).
The report, based on 2010 data, emphasizes the need to bring agricultural income under the tax net as provinces work on legislation in line with IMF requirements.
Punjab’s Assembly has already passed a bill for Agriculture Income Tax (AIT), with specific rates yet to be notified through rules. Other provinces, including Sindh, Khyber Pakhtunkhwa, and Balochistan, are expected to follow suit by seeking legislative approvals.
The report also highlights a Rs1.2 trillion tax compliance gap in the corporate sector, primarily from tobacco, tea, real estate, automobiles, and pharmaceuticals. These sectors collectively contribute to significant tax evasion, which remains a persistent challenge for the economy.
Kate Lappin, Asia Pacific Regional Secretary for PSI, expressed concerns about privatization and emphasized the need for a fair taxation regime. She noted the global context, referencing G20 discussions on imposing a 2% tax on billionaires, and underscored Pakistan’s struggles with corporate tax evasion.
According to the report, the country faces a corporate income tax gap of Rs1,178 billion as of 2021, with major contributors including the tobacco, tea, and real estate sectors. Only Rs1,655 billion was collected against a potential Rs2,833 billion, resulting in a 41% shortfall.
The report criticizes South Asia’s largely regressive tax systems, including Pakistan’s, where GST accounts for 3.4% of GDP, while corporate income tax and profits contribute approximately 4.4% of GDP. It calls for urgent reforms to address these gaps and create a more just and effective tax framework.
