THE first year of Pakistan’s unified agriculture income tax regime has exposed a stark gap between policy ambition and revenue collection, with provincial tax authorities collecting barely two per cent of the agricultural income declared by taxpayers during fiscal year 2025-26.

The figures raise fresh questions about the effectiveness of the landmark reform introduced last year under a fiscal restructuring programme backed by the International Monetary Fund.

Despite a harmonised legal framework and uniform tax rates across all four provinces, provisional data shows that around 445,000 taxpayers declared Rs306 billion in agricultural income in tax year 2025, while provincial governments provisionally collected only Rs5.62bn in agriculture income tax (AIT) during the outgoing fiscal year.

Structural weaknesses, weak enforcement, political considerations and the influence of large landowners continue to undermine the provinces’ ability to collect AIT. Although the four provinces agreed on a harmonised legal framework and tax rates, each has adopted a different approach to implementing the tax.

Agriculture income tax collection equals barely 2pc of declared income

For fiscal year 2026-27, Sindh has aligned its super tax on agricultural income with the federal regime while abolishing the advance tax provision.

Punjab and Khyber Pakhtunkhwa have taken the opposite course.

Punjab has instead increased advance tax rates, signalling a greater reliance on advance tax collection, while KP has abolished super tax on high-income earners and retained its zone-based fixed tax per acre system.

Balochistan has yet to disclose its AIT policy for the new fiscal year, as the provincial government has not shared its budget white paper 2026-27 and other documents despite repeated requests.

Former chief economist Dr Mohammad Ahmed Zubair said agricultural income taxation sits at the heart of Pakistan’s most entrenched political economy fault lines.

Since provincial governments are effectively captured by the landed class, any attempt to tax agricultural income becomes a tax on the governing coalition itself.

“IMF pressure exposes the contradiction but cannot resolve it,” he remarked.

“The reluctance to tax agricultural income reflects a deeper state‑capacity deficit: provinces lack both the administrative machinery and the political autonomy to confront powerful rural constituencies,” the chief economist said, adding that the IMF programme has exposed the gap between formal policy commitments and the political will needed to enforce them.

A province-wise analysis of the provisional data collection shows considerable room to improve AIT collection.

The weak collection ratios suggest that agriculture income tax remains one of the few untapped sources of provincial revenue at a time when provinces are under increasing pressure to mobilise their own resources from direct taxes.

Punjab

Punjab presents the clearest example of the gap between declared agricultural income and actual tax collection. The province had originally projected Rs10.5bn in AIT collection for fiscal year 2025-26 but later revised the target downward to Rs3.9bn in the 2026-27 budget, implying a shortfall of Rs6.6bn, or nearly 62pc.

The achievement of the revised collection will again not be clear until the final collection figures are compiled at the end of June.

Despite missing the original target by a wide margin, the province has set an even higher collection target of Rs12.5bn for fiscal year 2026-27, signalling an indication for stronger enforcement measures to improve compliance.

Official data shows that around 396,000 taxpayers in Punjab declared Rs293bn in agricultural income in their federal income tax returns for tax year 2025.

According to the Seventh Agriculture Census 2025, Punjab had about 5.05 million farms spread over 31.04m acres, of which 29.6m acres were under cultivation.

The average farm size was 6.1 acres, with 5.9 acres cultivated. These indicators suggest that a substantial portion of agricultural income remains outside the effective tax net in the province. Both metrics to be used as benchmarks for the AIT collection in Punjab show that billions of agriculture income stay away from the ambit of tax.

Sindh

Sindh’s agriculture income tax performance also remains well below potential, with a wide gap between declared farm income and actual tax collection.

The province had set an AIT target of Rs6bn for fiscal year 2025-26 but revised it downward to Rs1.9bn in the 2026-27 budget, reflecting a sharp revenue shortfall. For the new fiscal year, the target has been reset at Rs6bn.

Unlike the other three provinces, where the Board of Revenue administers AIT, Sindh has assigned the responsibility to the Sindh Revenue Board (SRB).

Even so, tax compliance remains weak. Around 45,000 taxpayers declared agricultural income of Rs44bn in their tax returns for tax year 2025, suggesting that the province has a much larger taxable base than current collections indicate.

Like Punjab, the land-owning elites in Sindh also pay a very negligible tax as compared to the due tax on their incomes.

The Seventh Agriculture Census 2025 also points to significant untapped potential. Sindh has about 1.83m farms spread across 8.1m cultivated acres, including 7.3m irrigated acres. The average farm size is 5 acres, with 4.4 acres under cultivation. Despite this sizeable agricultural base, tax collection remains modest.

The Sindh government has opted for a different policy approach from Punjab. In the 2026-27 budget, it aligned the super tax on agricultural income with the revised federal rates by reducing the maximum rate from 10pc to 8pc for income exceeding Rs500m.

Khyber Pakhtunkhwa

KP has also shared a similar performance with other provinces when it comes to generating revenue from AIT, with collections remaining well below the sector’s apparent potential. The province had projected AIT collection of Rs130m for fiscal year 2025-26 but had collected only around Rs80m by the end of May, making it unlikely that the target will be achieved.

For fiscal year 2026-27, the target has been raised modestly to Rs160m.

Official data shows that about 14,000 taxpayers declared agricultural income of nearly Rs9bn in their federal income tax returns for tax year 2025, suggesting that a substantial portion of taxable agricultural income remains outside the provincial tax net. The land-owning elites of the province, like other provinces, are not willing to pay due taxes on their income.

The Seventh Agriculture Census 2025 also indicates considerable untapped potential. KP has about 4.17m farms covering 8.8m acres, of which 7.2m acres are under cultivation. The average farm size is 2.1 acres, with 1.7 acres cultivated. The declared agriculture income as well as the size of the farm reflects a high potential for revenue.

Balochistan

Balochistan’s AIT performance reflects not only weak revenue collection but also a lack of transparency in fiscal reporting.

Unlike the finance departments of the other three provinces, the Balochistan government has yet to release its budget white paper for fiscal year 2026-27, despite repeated requests from the media and the legal requirement to make key budget documents public. Senior officials of the finance department did not respond to requests for comment.

The province had set an AIT target of Rs1.25bn for fiscal year 2025-26, but had collected only about Rs92m by the end of May, leaving a substantial revenue gap.

A finance department official said the target for fiscal year 2026-27 would be doubled, although he could not provide the exact figure. The absence of the budget white paper has left the official target unavailable.

According to the Seventh Agriculture Census 2025, Balochistan has about 630,000 farms with the country’s largest average farm size at 16.1 acres, although only 12.2 acres per farm are under cultivation.

Published in Dawn, July 3rd, 2026