The upcoming Tax Laws Amendment Bill, 2021, is deliberating to restrict the definition of “agricultural income” under the Income Tax Ordinance, 2001, to narrow the scope of income tax exemption available to the agricultural sector.
ProPakistani has learned that the Tax Laws Amendment Bill, 2021, is a new law coming to impose sales tax on different sectors and items of Rs. 350 billion. The law would also deal with a few areas of income tax and would amend the Sales Tax Act and Income Tax Ordinance.
The government is considering different options to tax the “agricultural income” keeping in view the fact that agriculture is a provincial subject. However, the Federal Board of Revenue (FBR) can make changes within the legal framework of the Income Tax Ordinance, 2001. For instance, the federal government can make changes in the relevant provisions of the Income Tax Ordinance, 2001, without committing any violation of the Constitution.
Under the Constitution, “agricultural income” means agricultural income as defined for the purposes of the law relating to income tax. The Constitution states, “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, 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 moneys are or may be distributable to Provinces, shall be introduced or moved in the National Assembly except with the previous sanction of the President.”
On the other hand, section 41 (agricultural income) of the Income Tax Ordinance states,
Agricultural income derived by a person shall be exempt from tax under this Ordinance. In this section, “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.
Sources said that the government might restrict the scope of agricultural income tax exemption within the legal framework of the Income Tax Ordinance, 2001. A possibility could be the restriction of the income tax exemption only to the cultivator of the land or restrict income tax exemption to essential food crops.
