The International Monetary Fund (IMF) mission and Pakistani officials held discussions on agricultural income tax as part of the ongoing negotiations for the next tranche under the $7 billion Extended Fund Facility (EFF).
According to a media report, the IMF team met with representatives from provincial governments, the Ministry of Finance, and the Federal Board of Revenue (FBR) to review the taxation framework for agricultural income. Further discussions with provincial officials are scheduled for today [Tuesday].
While policy-level talks for releasing the next $1 billion tranche were expected to begin the same day, Finance Minister Muhammad Aurangzeb did not meet with the IMF mission. Instead, other senior officials engaged with the Fund’s team.
Provincial assemblies have enacted agricultural income tax laws, fulfilling a key requirement under the IMF programme, though not without resistance. Punjab was the first to pass the Agricultural Income Tax Bill in November 2024, with other provinces following suit in the subsequent months.
Under Punjab’s new agri tax law, an “equitable” agricultural income tax system has been introduced. Farmers with higher incomes will face a super tax, while tax defaulters will be penalised with fines of 0.1% per day on unpaid amounts.
Punjab farmers earning less than Rs1.2 million annually face a Rs10,000 fine for late payments, while those earning below Rs40 million will pay Rs25,000. For incomes exceeding Rs40 million, the penalty rises to Rs50,000 for delayed tax payments.
Khyber Pakhtunkhwa passed its Agricultural Income Tax Bill 2025 on January 27, 2025, despite opposition resistance. The law introduced a progressive taxation system, starting at 15% for annual incomes between Rs600,000 and Rs1.2 million and increasing up to 45% for incomes above Rs5.6 million. Additionally, a super tax applies to individuals earning over Rs150 million annually, reaching a maximum rate of 10% for those earning above Rs500 million.
Balochistan passed the “Tax on Land and Agricultural Income Amendment Bill” on February 3, 2025, aligning its framework with IMF conditions. The Sindh Assembly followed on February 4, 2025, approving its Agricultural Income Tax Bill amid reluctance. Sindh’s legislation exempts incomes up to Rs600,000, while a maximum 45% tax applies to incomes exceeding Rs5.6 million annually.
The introduction of these taxes marks a significant shift in Pakistan’s fiscal policy, addressing long-standing exemptions on agricultural income. However, concerns remain regarding implementation and potential opposition from the farming sector.
Pakistan is preparing a report outlining compliance with IMF conditions under the $7 billion loan program and a performance review of the first half of the fiscal year.
The IMF will finalise its assessment based on these reports before presenting its recommendations to the Executive Board, which will decide on the disbursement of the next installment.
