Last month, the Punjab Assembly took the lead in amending its agricultural income tax (AIT) law, increasing the maximum tax rate from 15 per cent (in Punjab and Sindh) to align with federal income tax rates for individuals and businesses, which reach up to 45pc. Other provinces are still deliberating similar changes, all in response to strings attached to the ongoing International Monetary Fund (IMF) programme.

However, critics of AIT argue that historically, agriculturists have been consistently paying not only explicit taxes (direct and indirect) but also heavy implicit taxes — income loss to farmers due to government policies that favour urban consumers and the industrial sector. Such implicit taxation, which manifests in various forms, has largely been overlooked by those who vigorously advocate for imposing comparable AIT.

Implicit taxation in Pakistan primarily stems from the government’s longstanding policy of controlling prices of agricultural inputs as well as outputs — major crops like wheat, cotton, sugarcane, and rice (until 2009-10). Recently, the Punjab Government enacted the Punjab Price Control of Essential Commodities Act 2024, which further broadened its authority over the pricing, movement, and distribution of almost all agricultural inputs and outputs.

Using this act, in July 2024, the Punjab Government capped district-specific wheat prices between Rs2,800-3,050 per 40kg — well below farmers’ production costs, import parity price, announced support price for 2024, and even prevailing market rates. The objective was to lower the price of ‘roti’ in urban centres. However, this single measure effectively transferred hundreds of billions of rupees from the agriculture sector to........

© Dawn Business