A recent report by Fredrich Ebert Stiftung (FES) suggests that applying tax rates on agricultural income similar to those imposed on other sectors could help Pakistan generate an additional Rs. 65 billion per year.

This recommendation comes as provinces move closer to implementing an Agriculture Income Tax (AIT) under conditions set by the International Monetary Fund (IMF). The Punjab Assembly has already passed the AIT bill, while other provinces, including Sindh, Khyber Pakhtunkhwa, and Balochistan, still need to secure legislative approval.

The report also highlights a significant Rs. 1.2 trillion tax compliance gap in the corporate sector, with industries such as tobacco, real estate, automobiles, tea, and pharmaceuticals collectively evading taxes amounting to Rs. 310 billion as of 2021.

During a roundtable on Pakistan’s National Tax Policy, Senator Saleem Mandviwalla criticized the inequities within the tax system, noting that the salaried class bears a disproportionately higher tax burden compared to sectors like retail and real estate. Former Senator Farhatullah Babar advocated for the abolition of tax exemptions granted to military and civilian elites to promote fairness.

The report further underscores the regressive nature of taxation in South Asia, pointing out that in Pakistan, corporate income tax contributes only 4.4 percent of GDP, while the Goods and Services Tax (GST) accounts for 3.4 percent.

Despite a direct tax gap of Rs. 1,961 billion, only Rs. 1,655 billion of the Rs. 2,833 billion owed in corporate income tax was collected, resulting in a 41 percent shortfall.