“Although the Punjab Assembly passed the Agriculture Income Tax Amendment Act of 2024, it fell below the desired target of raising the agriculture income tax rates to 45 percent. Punjab Information Minister Azma Bukhari denied any breach of the pact and said the newly amended provincial law addressed the needs of the National Fiscal Pact. It's not in any breach. Even the IMF has read the amendments and is fine with them. If there is any breach then the IMF would have said that during the last two days’ meetings”— Azma Zahid Bukhari, Punjab Information Minister.
The media reports at home and abroad, while quoting the Punjab Information Minister, give an impression that while passing the Punjab Agricultural Income Tax (Amendment) Act 2024 (XV of 2024) no breach of any law has been committed. One news report particularly mentions that as per the claim of the provincial minister even the team of International Monetary Fund (IMF) read the amendments proposed/made in the Punjab Agricultural Income Tax of 1997 and found the same “fine”. If it is true it not only exposes the competence of legislatures of the Punjab Assembly but the experts (sic) of IMF.
Taxing “agricultural income” is the sole prerogative of provincial assemblies, in terms of Article 142(c) read with Entry 47 of Part I of Federal Legislative List [FFL] contained in the Fourth Schedule to the Constitution of Islamic Republic of Pakistan [“the Constitution’], except in areas that fall within the domain of the federal government, known as Islamabad Capital Territory (ICT)—see Article 1(b) of the Constitution.
The National Assembly can impose income tax on all types of income except “agricultural income” as Entry 47, Part I of FLL reads: “Taxes on income other than “agricultural income”. However, it may be highlighted that within the ICT, the National Assembly has the exclusive power to levy income tax on “agricultural income” as provided in Article 142(d) of the Constitution which says: “Majlis-e-Shoora (Parliament) shall have exclusive power to make laws with respect to all matters pertaining to such areas in the Federation as are not included in any Province”.
The definition of “agricultural income”, according to Article 260 of the Constitution, “means agricultural income as defined for the purpose of the law relating to income tax”. This is an exclusive definition meaning that no other meaning can be assigned to it, except for the purpose of the law relating to income tax, which at present is Income Tax Ordinance, 2001 —section 41 of it exhaustively defines what is “agricultural income”.
Pakistan’s tax shortfall and a delay in materialising foreign loans have emerged as the main concerns of the International Monetary Fund (IMF) while Punjab’s new agriculture income tax law is still not fully aligned with the federal legislation and in deviation to the National Fiscal Pact
It is a matter of record that despite the clear provisions of the Constitution and the principle of equity, none of the provincial governments has ever shown inclination to collect tax from the wealthy and absentee landlords on “agricultural income” at the rates applicable under the Income Tax Ordinance, 2001 on non-agricultural income. The ramifications of this inaction, rather an apathy, and condition of IMF for collection of agricultural income tax, vis-à-vis ongoing US$7 billion 37-month extended fund facility (EFF) programme, at par with federal personal and corporate income tax rates, was discussed in detail in the article of July 20, 2024, in these columns.
The deadline fixed for the provinces by the IMF for the promulgation of amended agricultural income tax laws by October 31, 2024, and collection by January 1, 2025, has already been ignored/violated. The new dates committed with IMF are December 31, 2024, and July 1, 2025, respectively. According to a news report, “Pakistan’s tax shortfall and a delay in materialising foreign loans have emerged as the main concerns of the International Monetary Fund (IMF) while Punjab’s new agriculture income tax law is still not fully aligned with the federal legislation and in deviation to the National Fiscal Pact”.
Till today, the stance of the government of Punjab is that there is no breach of any law/agreement, claiming that the newly amended provincial law has addressed “the needs of the National Fiscal Pact”. The fact is that there are certain breaches of the supreme law of the land while enacting the Punjab Agricultural Income Tax (Amendment) Act 2024 (XV of 2024) passed by the Punjab Assembly on November 15, 2024. In a news report of December 5, 2024, it is aptly highlighted: “Through its Punjab Agriculture Income Tax Act 2024, the government of Punjab has encroached constitutional territory of the Centre by imposing tax on livestock income”.
The newly inserted addition in the definition of “agricultural income” through Punjab Agricultural Income Tax (Amendment) Act 2024 (XV of 2024) includes “income from livestock”. This expression is defined exhaustively to mean: “cattle, buffalo, sheep, goat, camel, horse and other useful animals kept or raised for income generation”. By doing so, the Punjab Assembly has blatantly violated Article 142(c) read with Entry 47, Part I of FLL as it is not “agricultural income” as defined under Article 260 of the Constitution.
For the purpose of Article 260 of the Constitution, the following is the binding definition of “agricultural income”, contained in section 41 of the Income Tax Ordinance, 2001:
“41(1) .....................................
(2) “agricultural income” means-
(a) any rent or revenue derived by a person from land which is situated in Pakistan and is used for agricultural purposes;
(b) any income derived by a person from land situated in Pakistan from-
(i) agriculture;
(ii) the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by such person to render the produce raised or received by the person fit to be taken to market; or
(iii) the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by such person, in respect of which no process has been performed other than a process of the nature described in sub-clause (ii); or
(c) any income derived by a person from-
(i) any building owned and occupied by the receiver of the rent or revenue of any land described in clause (a) or (b);
(ii) any building occupied by the cultivator, or the receiver of rent-in-kind, of any land in respect of which, or the produce of which, any operation specified in sub-clauses (ii) or (iii) of clause (b) is carried on, but only where the building is on, or in the immediate vicinity of the land and is a building which the receiver of the rent or revenue, or the cultivator, or the receiver of the rent-in-kind by reason of the person’s connection with the land, requires as a dwelling-house, a store-house, or other out-building.”
The above exclusive definition leaves no room for any provincial legislation to tax any income that falls outside its explicit scope. There is no ambiguity in the light of the plain language of law and cases decided in the Sub-Continent since the introduction of income taxation that any profits and gains arising from livestock are not “agricultural income”. It is not understandable who advised the Punjab Government to include it in its agricultural income taxation law, which is ultra vires of the Constitution, hence, void ab initio.
It is disturbing that the legislators of the ruling party sitting in the Punjab Assembly have committed gross violations of the Constitution while passing the Punjab Agricultural Income Tax (Amendment) Act 2024 (XV of 2024), which appears to be a handiwork of incompetent bureaucrats
It is pertinent to note that the definition contained in section 41 of the Income Tax Ordinance, 2001 [reproduced above] cannot be altered even by the Parliament without the prior sanction of the President of Pakistan as provided in Article 162 of the Constitution: “No Bill or amendment which imposes or varies a tax or duty the whole or part of the net proceeds whereof is assigned to any Province, or which varies the meaning of the expression “agricultural income” as defined for the purposes of the enactments relating to income-tax, or which affects the principles on which under any of the foregoing provisions of this Chapter, money are or may be distributable to Provinces, shall be introduced or moved in the National Assembly except with the previous sanction of the President”.
Both the federation and provinces under the Constitution are bound to follow the definition of “agricultural income” as provided in the income tax law while determining their legislative powers in terms of Article 70(4), Article 141, and Article 142 read with the Fourth Schedule to the Constitution. Needless to point out the Punjab Agricultural Income Tax (Amendment) Act 2024 (XV of 2024) by including income from livestock has breached these provisions. There is also a serious issue of excessive delegation of powers to the executive (provincial cabinet) to determine tax rates. It is violative of Article 77 of the Constitution.
It is disturbing that the legislators of the ruling party sitting in the Punjab Assembly have committed gross violations of the Constitution while passing the Punjab Agricultural Income Tax (Amendment) Act 2024 (XV of 2024), which appears to be a handiwork of incompetent bureaucrats. The amendments were not made public for debate, and input was sought from professional bodies and tax experts. The supervision and/or assistance by the IMF, if in existence, also stands exposed, proving how little they know about our constitutional framework.
Since 1997, when agricultural income tax (AIT) was first time imposed in Pakistan by provinces under a military dictator, admittedly, barring a few cases, all provinces have been collecting land tax and not AIT. One hopes that Sindh, Khyber Pakhtunkhwa, and Balochistan assemblies when amending their agricultural income tax laws as part of the National Fiscal Pact—signed as a commitment by the Centre and the four provinces under the IMF programme—will avoid the mistakes committed by the Punjab Legislature.