ISLAMABAD:
The four provincial governments have missed the International Monetary Fund’s (IMF) deadline to pass new legislation for increasing the agricultural income tax rate to 45% by the end of October but a draft bill shows that the federating units are on their way to amend laws with certain aberrations.
The draft bill shows that the provincial governments are ready to increase the abysmally low tax rate to as high as 45% and will also impose up to 10% super tax on the high income-earning landlords. Penalties are also being tightened by extending the penalty on default from 25% to 50% of the outstanding amount.
However, the federal government was not sure whether the provincial assemblies would approve the laws and enforce the new rates from January.
By the end of October, “each province amends their agriculture income tax legislation and regime to fully align it with the federal personal income tax regime for small farmers and the federal corporate income tax regime for commercial agriculture, so that taxation can commence from January 1, 2025”, according to the IMF’s documents.
The deadline has been missed by all the provincial governments amid serious challenges being faced by the federal government due to half-hearted cooperation from the federating units in fully implementing the IMF conditions.
After Punjab ran a Rs160 billion budget deficit in the first quarter, Pakistan missed a major condition of generating Rs342 billion in cash surplus by the four provinces.
However, Punjab has taken the first step and its cabinet approved the draft of the Punjab Agriculture Income Tax Bill 2024 on October 30. It still missed the deadline as the law has not yet been approved by the provincial assembly.
“The provincial cabinet has approved the Punjab Agricultural Income Tax (Amendment) Bill 2024,” said Azma Bukhari, Information Minister of the province.
She added that after the passage from the assembly, the provincial government would be able to align the agricultural tax regime with the federal personal income tax regime.
“Income from livestock will also be taxed as per these amendments,” said Bukhari, while responding to another question. She said that the bill had been sent to the Law Department for introduction in the Punjab Assembly.
Khyber-Pakhtunkhwa (K-P) cabinet will take up the draft of the Agriculture Income Tax Bill next week, said Muzammil Aslam, Finance Adviser to the K-P Chief Minister.
The draft bill, which is subject to further changes by the provinces, showed that the provincial governments had agreed to levy the agricultural income tax on every owner of agricultural land or the agricultural income of every person being a cultivator or receiver of rent-in-kind of such land.
According to the proposal, the income tax rate for a small company will be 20% and for a normal company it will be 29%.
According to the proposed rates for individuals, on the annual income of more than Rs600,000 to Rs1.2 million, farmers will pay 15% income tax. On income up to Rs1.6 million, the rate will be 20%, on income up to Rs3.2 million, the rate will be 30%, on income up to Rs5.6 million, the rate will be 40% and above Rs5.6 million income, the rate will be 45%.
Likewise, on annual income of more than Rs150 million to Rs200 million, the landlord will pay 1% super tax, on income up to Rs250 million, they will pay 2% super tax, on Rs300 million 3% super tax, on Rs400 million 6% super tax, on Rs500 million 8% super tax and above Rs500 million 10% super tax.
On land ownership, Rs500 to Rs3,500 per acre in taxes will be charged.
According to another proposal, the provincial government will have the right to open the income tax return of a farmer or landlord till four years, up from the current two years.
In case, the person does not file the tax statement and does not pay the tax, the collector may impose 0.1% of the tax payable in respect of that tax year for each day of default, or Rs1,000 for each day of default.
The minimum penalty will be Rs10,000 in cases where the agricultural income does not exceed Rs1.2 million. The minimum penalty will go up to Rs20,000 in cases where the agricultural income is up to Rs40 million and Rs50,000 in cases where the agricultural income exceeds Rs40 million.
The new law also suggests a default surcharge for non-payment or late payment of tax. The government may impose a default surcharge penalty at the rate of 12% or Kibor plus 3% per annum, whichever is higher.
The National Fiscal Pact, which has been signed by the four provinces, states that provincial governments shall amend agricultural income tax regimes to fully align them, through necessary legislative changes, with federal personal income tax (small farmers) and corporate (commercial agriculture) tax regimes by the end of October.
The pact states that provinces will begin the taxation of agricultural income under the new regime from January 1, 2025, with collection for the second half of FY 2024-25 agricultural incomes in July 2025.
Federal personal income tax rates are as high as 50% and corporate rates are 29%, excluding the super income tax.
The FBR has missed its four-month tax target by Rs190 billion, which on Friday led to the reshuffling of 18 senior officers. The government replaced Badsha Khan Wazir as member operations and brought Hamid Ateeq Sarwar in his place.
Sarwar was earlier working as member Inland Revenue Policy. Najeeb Ahmad Memon has been appointed as new member IR Policy. Badsha Wazir has been made member legal. Sajidullah Siddiqui has been removed as chief commissioner of Large Taxpayers Office Karachi, which contributes about one-third of total taxes. In his place, Zubair Bilal has been posted in Karachi.
Sajid Taslim Azam has been made new chief commissioner of the Large Taxpayers Office, Lahore, which is the second most important field unit.
Zainul Abdidin Sahi has been made new chief commissioner of Large Taxpayers Office, Islamabad, the third most important field office.
