Agricultural Tax in Punjab and Pakistan

Agriculture Tax in Punjab

Under the Income Tax Ordinance 2001 the agricultural income is exempt. However, it is taxable under the provincial laws. The question arises; how to compute agriculture income? What are the rates, and who is required to file return? Such queries are answered here.

Agricultural tax laws in Pakistan are most neglected law as implementation of Agricultural Income Tax is the subject of provinces. There is very little know-how about this tax for the reason that the tax is levied on the agriculturists who are low educated sect of the society. However, agricultural income tax has become significant subject matter in the recent days as a result of amendment in section 111 of the Income Tax Ordinance 2001. This amendment provides that the persons who declare their source of investment in purchase of properties and cars etc as their agricultural income should have to prove that that they have declared due agricultural tax.

The amendment was made to resolve the issue that most people declaring nominal income in their income tax returns were found to have made huge investments in movable and immovable properties. When, they were asked to explain their source of investment in relation to their income tax paid in the recent days, they took the plea that it was their agricultural income which was utilized for purchase of the particular property/asset. Obviously, no provision of law was available in the statute book to rebut such plea. Nonetheless, now every person who takes such plea has to prove that he is paying taxes on such agricultural income which was claimed to be utilzied for purchase of certain asset.

The people who were unaware of this amendment had filed their returns to show agricultural income keeping in mind that this income is exempt. Now the problem is that in the income tax Ordinance 2001 the exemption is provided upto the income of Rs.400,000 which means that a person whose income is less than Rs.400,000 is not required to pay any income tax. However, according to the agricultural laws, the exemption is available only to the extent of Rs.80,000 and thereafter higher tax slabs are prescribed as compared to the tax rates prescribed in the Income Tax Ordinance. This is for the reason that agricultural laws have not been modified according to the needs of the day. When exemption for business/salaried persons is Rs.400,000 why the same is provided at Rs.80,000 for agriculturists. This is a lacuna which needs to be resolved by the provincial governments.

In Punjab the income tax is chargeable under two domains; Land Based income tax and progressive rates on the basis of net income. The tax rates for land based agriculture income are as under:

Farmers/agriculturalists were required to pay any of the above taxes whichever is higher.

Who is required to file agricultural income tax return?

I) Having fifty acres or more of irrigated land; or

II) One hundred or more of un-irrigated land; or

III) Irrigated and un-irrigated land the aggregate area of which is equal to or more than fifty acres of irrigated land, once acre of irrigated land being reckoned as equivalent to two acres of un-irrigated land

What is agricultural income?

By virtue of its definition in the Punjab Agricultural Income Tax Act 1997, agricultural income consists of any rent or revenue derived form land which is situated in the Punjab and is used for agricultural purposes; any income derived from such land by agriculture and agricultural processes; and any income from buildings on or in the immediate vicinity of the land.

How the agricultural income to be computed:

Any allowance admissible under the Punjab Agricultural Income Tax Act 1997 shall be included in the total agricultural income, but may be deducted from such income for the purpose of computing the tax payable by an assessee under the Act.

In order to compute the agricultural income a farmer/agriculturist is allowed to deduct following expenditures from his gross receipts:

(a) any expenditure of labour for tilling the land; sowing the seed; ploughing/planting, tending/pruning etc.

Improvements required in Agricultural income tax

Through amendment made in Income Tax Ordinance 2001 the Government has made it mandatory that in case a taxpayer declares his agricultural income that should only be accepted in case he pays the agricultural tax on such income. On the basis of this information the Federal Government has passed on the information to Provincial governments of such taxpayers who have declared agricultural income, which is otherwise exempt under the Income Tax Ordinance 2001. In fact the taxpayers who have declared agricultural income claiming exemption would get not benefit as rate of tax on agricultural income in Punjab are very high and basic exemption is also available to the extent of Rs.80,000. In fact due to its inapplicability since long the Agricultural income tax laws have not been amended/modified. For example the basic exemption is just Rs.80,000 whereas in Income Tax Ordinance 2001 the basic exemption which was also just Rs.80,000 long ago is now extended to Rs.400,000 in accordance with the increase in inflation rates etc.