Curbing Fiscal Deficit through Enhancing the Agriculture Income Tax Collection in Punjab, Pakistan

Abstract

Pakistan faces fiscal deficits, and the federal government struggles to increase revenue. Agriculture income is taxable by the provincial governments. Post the Eighteenth Amendment, the provinces have mainly relied on their share from Federal Consolidated Fund and have not diligently tried to increase agricultural income tax collection. There is a need to ascertain the impediments in enforcing the law for optimal tax collection in Punjab. This research is an attempt to fill this gap in the literature. Through a qualitative approach, this paper finds that the issues in the non-implementation of the Agricultural Income Tax Act 2001 in Punjab arise from socio-cultural and political considerations. These are then translated into administrative inefficiencies by the revenue authorities. Legal amendments, as well as administrative reforms, are needed to enhance the revenue collection according to its potential. Based on the analysis, this paper recommends conducting a district-level study to determine the true potential of agricultural income tax in Punjab, possibly using proxies for income estimation. It suggests changing the land-based tax assessment to a minimum tax to eliminate the incentive for tax avoidance and introducing a minimal turnover tax on agriculture income to broaden the tax base and enhance collection efficiency.