WITH Sindh and Balochistan finally approving changes to their agriculture income tax laws to harmonise their AIT rates with the federal personal and corporate income tax regime, the country has met another IMF funding programme goal. Even though the provinces, barring Punjab, breached the deadlines set by the IMF for the passage of the required changes in their AIT laws, the amended versions should help reinforce Pakistan’s case during the first biannual performance review of the programme, due later this month or early March. The provinces had committed with the lender to make the required legislative changes in their respective farm tax laws before the start of 2025 to increase their own tax collection efforts.

The harmonisation of the provincial agriculture tax laws with the federal income tax laws is not only crucial for broadening the tax base, it is also important for plugging a big loophole that facilitates tax evasion due to a low slab rate. While it is senseless to expect the changes in the provincial AIT regimes to significantly increase revenues immediately, the measure should make the national tax system a bit more equitable. Therefore, criticism of the centre for ‘imposing’ the new AIT rates on Sindh’s people by the province’s chief minister and other PPP legislators was misplaced. What the recent economic and financial crisis has underlined is that the state, which has one of the lowest tax-to-GDP ratios of less than 10pc in the world, has no option but to collect taxes from every segment of the economy. Nor can it shift the tax burden of one segment onto another to meet its increasing revenue needs for building infrastructure and improving public services. That said, the passage of the amendments to the law was the easier part. It will more difficult to revamp the collection system. For that, the provinces must build the capacity of their revenue officials and digitise their land records.

Published in Dawn, February 5th, 2025