As in previous years, pre- and post-budget television talk shows and debates this June once again highlighted the perceived untapped taxation potential of the agriculture sector. Some analysts even cited estimates suggesting that agricultural income tax collections could reach up to Rs800 billion.
Much of this public debate, however, rests on misconceptions and simplistic comparisons rather than a deeper understanding of the sector’s landholding pattern and the complex socio-economic and policy environment in which agriculture operates.
One of the most widespread misconceptions is that the agriculture sector does not pay income tax. In reality, agricultural income tax is a provincial subject. Punjab introduced it in 1997, while Sindh, Khyber Pakhtunkhwa (KP), and Balochistan enacted their respective regimes in 2000.
Under these tax laws, large landowners — those owning more than 50 acres of irrigated land — were required to file tax returns based on their declared income with the respective provincial revenue department. Other farmers were also liable to pay agricultural income tax, either land-based (progressive per-acre fixed tax) or income-based, whichever is higher.
Roughly 96pc of Pakistani farmers are smallholders owning less than 12 acres, while 61pc are subsistence farmers cultivating less than 2.5 acres
However, the tax rates applicable to agricultural income have generally remained lower — maximum 15 per cent — than those on business income, because the agriculture sector produces essential commodities whose prices directly affect food inflation in the country.
Another widely cited argument is that the agriculture sector contributes around 23.5pc to Pakistan’s GDP but less than 0.1pc to tax revenue. What is often overlooked, however, is that crops account for only 34pc of the agriculture sector, while livestock, forestry, and fisheries make up the remaining 66pc.
Thus, crop production contributes 7.97% of Pakistan’s GDP — roughly $36bn, or around Rs10 trillion. While this contribution is undoubtedly significant, it is produced by 11.7 million farmers, according to the 7th Agricultural Census of Pakistan 2024. More importantly, 96pc of these farmers are smallholders owning less than 12 acres, while 61pc are subsistence farmers cultivating less than a hectare (2.5 acres).
This fragmented ownership pattern fundamentally distinguishes agriculture from most other sectors of the economy. Large tax revenues are generally generated by sectors dominated by a relatively small number of large enterprises. Banking, cement, fertiliser, and telecommunications are obvious examples, where individual companies generate annual revenues and pre-tax profits running into billions of rupees. Agriculture presents an entirely different picture.
The average farm size in Pakistan is only 5.1 acres. On average, each farm contributes roughly Rs850,000 to the national GDP, while its net income is far lower. Therefore, judging tax potential by comparing sectors solely based on their GDP share is misleading.
Despite this fragmented landholding pattern, about 4pc of farmers — roughly half a million — own more than 12 acres of land. Yet, when the discussion narrows to genuinely large landowners, the numbers become far more modest.
According to the latest agricultural statistics, only 49,892 farmers across Pakistan own more than 50 acres. Of these, 32,934 have holdings ranging from 50 to 100 acres, with an average farm area of about 64 acres, while only 16,958 farmers — a tiny fraction of the country’s farming population — own more than 100 acres. It should also be kept in mind that some of these large landowners cultivate rain-fed land, land with brackish groundwater, or land located in sandy and less productive areas.
However, it cannot be denied that a very small segment does exist that earns agricultural incomes that most people can only envy. This landed aristocracy rides Land Cruisers and lives in posh areas of Lahore, Karachi, and Islamabad, and is often portrayed in public debates as representative of the agricultural sector and is frequently cited as an example of untaxed wealth.
However, much to the disappointment of many television analysts, the overwhelming majority of such landowners regularly file agricultural income tax returns with the respective provincial revenue authorities as well as the Federal Board of Revenue (FBR) to get all associated benefits of being a filer.
Given Pakistan’s existing landholding pattern and the relatively small number of large taxable farms, even taxing agricultural income at rates comparable to those applicable to business income is unlikely to generate more than Rs 30–40bn annually. Recognising this reality, Punjab’s recent budget increased the land-based agricultural tax by 300pc — to Rs1,000 per acre — yet still sets a modest revenue target of only Rs12.5bn for FY27, up from Rs4bn in FY26.
Horizontal equity — taxing incomes equally irrespective of source — is also complicated in agriculture. Unlike most businesses, crop prices are heavily distorted by government intervention. For example, the Punjab government enacted the Punjab Price Control of Essential Commodities Act 2024, which broadened its authority over the pricing, movement, and distribution of almost all agricultural produce.
Due to such distorted market prices, farmers are indirectly paying hundreds of billions of rupees every year in the form of implicit tax. For the 2025 wheat crop alone, one estimate suggests that farmers paid around Rs1,200bn in implicit taxation. Therefore, treating agriculture like any other business is both misleading and unjust.
Concerns about tax sheltering — parking business income under agriculture to benefit from preferential tax treatment — are also overstated. Farmers are required to submit gardavari with their tax returns. These records, issued by land revenue authorities, clearly specify the crops and acreage cultivated by the filer. With this documentation on record, large-scale tax sheltering is highly unlikely.
In conclusion, the agriculture sector is unique because, unlike most other sectors, its taxable base may actually shrink rather than expand in the future as farms continue to be divided across generations. Therefore, simply imposing higher tax rates is unlikely to deliver the expected revenue. The real solution lies in improving farmers’ incomes — through high-value crops, better yields, and productivity gains — rather than relying on myths and misconceptions about untapped taxation potential.
Khalid Wattoo is a development professional and a farmer. Dr Waqar Ahmad is a former Associate Professor at the University of Agriculture, Faisalabad.
Published in Dawn, The Business and Finance Weekly, July 6th, 2026