GDP share no measure of farm tax

They cautioned that treating the value of agricultural production as equivalent to taxable income could produce unrealistic revenue expectations, particularly for Pakistan's millions of small farmers who often sell crops at prices below official or expected rates.

Mahmood Nawaz Shah, President of the Sindh Abadgar Board, said the fundamental distinction in the taxation debate was between economic output and actual farm income. He cited wheat as an example, saying farmers could incur losses even though their production continued to contribute to GDP.

During the 2024-25 wheat season, he said, the government announced prices around Rs4,000 per 40 kg and later Rs3,900, while farmers in major producing areas sold wheat at substantially lower rates. "If the farmer sells below his cost or expected price, how can that production be treated as taxable income?

" he asked, arguing "GDP captures the value of production while taxation should ultimately be linked to profitability. " Shah said similar questions needed to be examined for cotton, maize, rice and sugarcane, where production, yields and market prices can vary considerably from year to year.

He rejected the argument that agriculture's share in GDP should automatically determine its tax contribution. Instead, he suggested that the government should calculate the sector's realistic tax potential using average profitability over five- to seven-year periods.

He also questioned the assumption that the agricultural workforce should correspond directly to the tax potential. Agriculture supports a large share of Pakistan's employment, he said, but its income is distributed among millions of people, resulting in relatively low income per worker in many parts of the sector.

Muhammad Ali Iqbal, President of Concave Agri Services, said the problem was particularly acute because more than eight million farmers were engaged in agriculture, with the overwhelming majority cultivating relatively small holdings. As farm sizes become smaller in many parts of the country, he said, applying a uniform tax structure becomes difficult.

Farmers also face uncertain revenues because crop prices can change sharply between sowing and harvesting. Iqbal said taxation should therefore take into account three critical variables: input costs, yield and output prices. Input costs have increased because of taxation and other market pressures, while yields remain constrained by seed quality, technology gaps and other production problems.

At the same time, farmers have limited control over the prices they receive when crops reach the market. He said the situation was different in commodities where government-supported prices or more predictable markets provide some basis for estimating income.

"Price uncertainty, price transparency and price discovery are critical issues," Iqbal said, adding that the government could not accurately determine taxable income without reliable information on production and prices. He said technology could help address the problem.

Satellite imagery, remote sensing and improved yield-estimation algorithms could allow authorities to estimate cultivated areas and crop production at district and tehsil levels and cross-check farmers' declarations. Such technology, he said, could eventually help establish a more credible relationship between actual farm production and taxable income.

Aamer Hayat Bhandara of Agriculture Republic also called for digitisation of the agricultural value chain, arguing that the government should establish a transaction record covering the movement of produce from farms to markets and ultimately to processors and consumers.

He suggested that agricultural commodities entering mandis (markets) should be weighed through electronic systems, with quantity and quality digitally recorded along with the transaction. "Such a farm-to-fork digital trail could help determine the actual volume and value of agricultural trade while reducing the scope for under-reporting," he said.

Iqbal said the issue also extended beyond the farmer because much of the economic value generated by agriculture is captured elsewhere in the supply chain. Food companies, processors, exporters and manufacturers purchase agricultural commodities as raw materials and add value before selling finished products.

Companies such as food processors purchasing tomatoes, chillies and other crops can therefore generate significant revenues from agricultural raw materials, even though that value may ultimately be recorded under manufacturing or other sectors. He said, "agriculture should consequently not be examined in isolation when assessing its contribution to tax revenue.

"Iqbal also pointed to the fragmented and undocumented nature of agricultural transactions. Farmers and agricultural SMEs frequently receive payments late and may lack the financial and digital literacy needed to maintain formal records. This makes it difficult for both taxpayers and tax authorities to establish actual annual income.

He argued that the government should also examine whether the existing regulatory environment discourages formalisation among agriculture and food-sector businesses. Compliance requirements involving the Federal Board of Revenue, particularly when companies source raw materials from farmers who may be non-filers, can create additional burdens for formally incorporated businesses, he said.