Zardari-Dar talks broke agriculture tax impasse
Background contacts between President Asif Zardari and Deputy Prime Minister Ishaq Dar led to a breakthrough on the issue of the new agriculture income tax law, introduced in Sindh on Monday, after all earlier efforts by the federal government failed to break the impasse, insiders revealed on Tuesday.
Government sources told The Express Tribune that the finance ministry's multiple attempts to convince the Sindh government to immediately introduce the agriculture income tax regime to save the International Monetary Fund (IMF) programme had failed.
They said that because of the delay of more than four months in passing and implementing the law; the IMF was not ready to give dates for the first review talks. This had also been disclosed by Sindh Chief Minister Murad Ali Shah on the floor of the house, while speaking about the legislation.
"We were bluntly told that the IMF team would not arrive, and the country would default if the agriculture tax bill was not passed into a law," Chief Minister Shah told the Sindh Assembly session.
After the finance ministry's efforts remained fruitless, the sources said, Ishaq Dar along with the economic team visited the Presidency a few days ago to convince the president on the matter.
The president first said that he would ask the Sindh government to introduce the bill after his return from a five-day China visit that began on Tuesday.
However, on Dar's insistence, the president immediately telephoned Chief Minister Shah, and also to the Balochistan Chief Minister Sarfaraz Bugti to introduce new bills in their respective provincial assemblies to levy the agriculture income tax in the two provinces.
According to the sources, the government acknowledged Dar's positive contribution to convincing President Zaradri in order to removing a major obstacle in the way of the IMF visit. A finance ministry official said that the political acumen of Dar helped achieve the outcome, the ministry had been trying hard to achieve during the past few months.
On Monday, after the Sindh Assembly unanimously passed the Sindh Agricultural Income Tax Act Bill, 2025, Finance Minister Muhammad Aurangzeb thanked the provincial governments for implementing the key condition of the IMF.
The finance ministry now feels confident about the success of the first review of the IMF programme. Last week, Aurangzeb had said that the IMF team might come either by the end of February or early March.
The IMF had imposed the condition that the provincial governments increase the abysmally low agriculture income tax rate to as high as 45% and impose up to 10% super tax on the high income-earning landlords.
By the end of October, "each province amends their agriculture income tax legislation and regime to fully align it with the federal personal income tax regime for small farmers and the federal corporate income tax regime for commercial agriculture, so that taxation can commence from January 1, 2025," according to the IMF programme documents.
The deadline had been missed by all the provincial governments but later on the provinces started introducing these laws because of the IMF's hard stance. The National Fiscal Pact, signed by all the provinces, also stated that provinces would tax the agricultural income under a new regime from January 1, 2025, with collection for the second half of fiscal year 2024-25.
Currently, the federal personal income tax rates are as high as 50% and corporate rates are 29%, excluding the super income tax. Even the IMF's Mission Chief to Pakistan, Nathan Porter, had said during internal meetings that his fingers were crossed when it came to introduction of the agriculture income tax law in Sindh, said the sources.
The sources said that the IMF was now expected to communicate a date for the review mission and its successful completion would unlock the second loan tranche worth over $1 billion.
Speaking on the floor of the house, Chief Minister Shah had criticised the federal government for not engaging the provinces in talks with the IMF, though the agricultural tax was a provincial matter.
The Sindh Agricultural Income Tax Bill proposes that annual agricultural income of up to Rs600,000 will be exempt from tax, while the maximum tax rate for income exceeding Rs5.6 million annually will be 45%.
A progressive super tax has also been introduced; with no super tax on annual agricultural income of up to Rs150 million and a maximum of 10% super tax applying to income exceeding Rs500 million annually. For the small agriculture firms, the new rate will be 20% and for the large firms it will be 29%, excluding the impact of the super tax.