In line with Pakistan’s obligations under the International Monetary Fund (IMF) bailout programme, the Sindh Assembly on Monday reluctantly greenlit the much-contested Sindh Agricultural Income Tax Bill 2025, voicing criticism over the exclusion of provinces from negotiations with the lender.

The law seen as part of Pakistan’s economic reforms under the IMF’s $7 billion agreement spanning 37 months, entails increased tax on agricultural incomes while underscoring the need to boost revenue collection and reduce recurrent deficit to complete the loan programme.

A provincial cabinet meeting, chaired by Sindh Chief Minister Murad Ali Shah, earlier approved the proposed law.

Shah, while addressing the Sindh Assembly session, fiercely defended the province’s taxation policies, pointing out that agricultural tax was already in place and being collected.

Slamming the federal government’s move to transfer tax collection to the Federal Board of Revenue (FBR), the CM accused the federal government of deliberately keeping provinces out of the loop when it negotiated a stand-by arrangement deal with the IMF.

“The FBR itself told the IMF that agriculture is not taxed,” Murad said, adding that the federal government initially assigned FBR to collect the tax last May but later forced provinces to implement the measure.

“The FBR has failed to meet its targets while burdening taxpayers further,” the CM said. Shah also highlighted Sindh’s stance on provincial autonomy, asserting that the Sindh Revenue Board (SRB) had consistently met its targets and that sales tax should be handed over to provinces.

He noted that Punjab and Khyber Pakhtunkhwa had already passed the agricultural tax bill, while Balochistan’s cabinet had also approved it.

“We don’t want the IMF programme to suffer because of us, but rushing this tax will create problems,” he said, adding that the implementation timeline had already been pushed to January 2025 and later to September 30.

Pointing to drought-like conditions in parts of Sindh, he highlighted that the persistent shortage of irrigation water was affecting thousands of acres of farmland, including his own, which had become barren due to the construction of a dam.

“Hasty decisions on taxation can disrupt farming,” the CM said, emphasising the importance of agriculture for food security.

Earlier, Sindh Law Minister Zia Lanjar, while presenting the bill, stated that the tax formula had been structured under the existing regime, emphasising Pakistan had to fulfil several agreements under the IMF programme.

This progressive legislation aims to strengthen the province’s tax collection framework and enhance fiscal responsibility within the agricultural sector.

Under this new law, the Sindh Revenue Board (SRB) will be the authority responsible for collecting and enforcing the agricultural income tax, ensuring a streamlined and efficient process.

The law proposes that agricultural income up to Rs600,000 annually will be exempt from tax, while the maximum tax rate for income exceeding Rs5.6 million annually will be 45%.

Agricultural income has historically been taxed much lower than other sectors, despite contributing 23% to the GDP, employing 35% of the labour force, and bringing in an annual income of around Rs9 trillion.

A progressive super tax has also been introduced, with no super tax on annual agricultural income up to Rs150 million and a maximum of 10% super tax applying to income exceeding Rs500 million annually.

Additionally, the law aims to include corporate farming in the tax net.

Small companies will be subject to a 20% tax rate on their annual agricultural income, while large companies will face a tax rate of 29%.

Notably, livestock has not been included in the tax net, and the advance agricultural income tax, based on land cultivation, will no longer be levied. The payment, collection, and filing of agricultural income tax will be fully automated for greater efficiency.

The new landmark law represents a significant policy shift by assigning the administration of the Agricultural Income Tax to the SRB, which has a proven track record in tax collection, according to a Sindh government statement.

“It is expected that this new legislation will broaden the tax base, improve transparency, and ensure equitable contributions from the agricultural sector, which is vital to Sindh’s economy,” the statement added.

Pakistan, which aims to boost its finances after securing a $7 billion IMF bailout in September 2024, with the first review set for late February, has been struggling with boom-and-bust cycles for decades, leading to 22 IMF bailouts since 1958.