HARMONISING the provincial agriculture income tax regimes with federal personal and corporate income tax rates is one of the key goals of the ongoing $7bn IMF funding programme. The provinces had committed to the lender and federal government, at the time of the finalisation of the loan agreement, that they would execute this condition by making the relevant legislative changes before the start of this year. The success of the first biannual performance review of the programme, beginning either late next month or in early March, will largely be determined by tangible progress on this critical issue as the failure to harmonise the provincial and federal rates could jeopardise the loan or at least delay the release of the next tranche. Apart from that, the harmonisation of the rates is also critical for a fair, transparent and equitable tax system in the country, as well as for plugging the loopholes that have contributed to tax evasion by both industry and wealthy individuals.

So far, the provinces are trying to resist the condition. For example, even though Punjab was the first province to make the required changes in its AIT law — and that too well before the IMF deadline — it has yet to notify the new, updated personal and corporate AIT rates matching the federal income tax slabs. For inexplicable reasons, the amendments to the law delegate the powers to notify the new rates to the Punjab cabinet. KP has just passed a bill after a delay of almost a month. Sindh and Balochistan have so far given no indication as to when they intend to amend their respective AIT laws. Sindh is understood to have drafted the amendments to its existing AIT law. Nevertheless, the ruling PPP in the province is believed to be stalling in order to exert pressure on Islamabad regarding the latter’s plans to construct new canals for corporate farming under the military’s green initiative. Indeed, politics is driving critical policy decisions in the case of both Punjab and Sindh, which together account for nearly 90pc of Pakistan’s farm output. With time running out, it is crucial for Punjab to notify the updated rates to address public doubts, and for Sindh to amend its law quickly in accordance with the agreement with the Fund whose support remains critical to an economy that is still in the early stages of recovery.

Published in Dawn, January 31st, 2025