IMF's new demand - Pakistan's agricultural income to be taxed !

IMF's new demand - Pakistan's agricultural income to be taxed ! 

By: Communicators - Business Team (July 11, 2024)

The International Monetary Fund (IMF) has proposed significant changes to Pakistan's tax regime as part of conditions for a new bailout program. Specifically, the IMF suggests imposing a tax rate of up to 45% on agricultural income, aligning it with federal income tax rates for non-salaried business individuals. Key Points of the IMF proposal include:

Tax Rate Implementation: A new standard individual income tax rate of up to 45% on agricultural income. Non-salaried individuals would face a 45% tax rate on net income, increasing to 50% with surcharges.

Deadline and Legislative Changes: Provincial laws must align with federal income tax laws by October 2024. Existing tax exemptions for the livestock sector to be rescinded by October 2023.

Revenue Impact: The World Bank estimates that taxing agricultural income could generate revenue equal to 1% of Pakistan’s GDP, amounting to Rs. 1.22 trillion.

Provincial Cooperation: Provincial governments have largely agreed to the IMF’s demands, though there is resistance to the high tax rates.

Current Tax Disparities: Provincial tax rates for agriculture vary, with Sindh exempting incomes up to Rs. 1.2 million and taxing higher incomes between 5% and 15%. Comparatively, salaried individuals face a 35% tax on an annual gross income of Rs. 4.1 million, leading to perceived unfairness.

Implementation Timeline: Provinces must start collecting the agricultural income tax by January 2025. If a province cannot implement this, the Federal Board of Revenue (FBR) will step in until a provincial mechanism is established.

Objectives: The IMF's objective is to eliminate disparities in the income tax system by ensuring that agricultural income is taxed similarly to other income types. This move aims to broaden the tax base and increase government revenues in Pakistan.