Provinces miss deadline for agriculture tax legislation under IMF conditions

The federal government has acknowledged that provincial governments missed the deadline to amend their agriculture income tax legislation by October 2024, as required under the International Monetary Fund (IMF) programme conditions.

Officials from the Ministry of Finance explained the delay during a presentation to the National Assembly Standing Committee on Finance. 

The provinces were supposed to amend their agriculture income tax regimes to align with the federal personal income tax for small farmers and the corporate income tax for commercial agriculture, with taxation to begin on January 1, 2025.

The committee was informed that Punjab has enacted the necessary law, while Khyber Pakhtunkhwa (KP) has received Cabinet approval and is awaiting submission to the assembly. 

Balochistan passed its law on November 11, 2024, and Sindh has yet to seek Cabinet approval, though preparations for the amended law have been completed.

Finance Ministry officials also outlined plans to introduce a 5% Federal Excise Duty (FED) on pesticides and fertilisers in the next fiscal budget. 

The document submitted to the committee also detailed revenue measures, with an emphasis on increasing provincial tax collection, particularly from sales tax on services, property tax, and agriculture income tax.

The federal and provincial governments have agreed that some responsibilities for spending, particularly in higher education, health, and social protection, will be devolved to the provinces in accordance with the 18th Constitutional Amendment. Additionally, the provinces are expected to focus on expanding their tax collection efforts.

Key reforms include transitioning the services GST from a positive to a negative list approach by FY 2025-26, implementing property tax reforms, and narrowing the tax compliance gap, particularly for GST. 

The National Tax Council’s terms of reference will be expanded to include the design and implementation of these measures.

On the spending side, provinces will contribute additional funds for higher education and health initiatives. The federal and provincial governments will also review social protection programs to identify overlapping allocations and improve coverage.

The provincial governments will also be required to discontinue procurement operations for raw commodities and refrain from announcing support prices. As per the 18th Amendment, certain spending responsibilities will be transferred to the provinces.

In governance, both levels of government will implement the Electronic Pakistan Acquisition and Disposal System (e-PADS) and adopt green budget tagging by June 2025. Provincial anti-corruption agencies will coordinate with federal agencies for anti-money laundering and counter-financing of terrorism strategies.

Other measures include granting banks access to wealth statements of high-level provincial officials and facilitating the expansion of the Pakistan Single Window platform for provincial departments. Both levels of government will also accelerate the digitalization of payments and public records to enhance access to credit.