The Federation of Pakistan Chambers of Commerce and Industry’s (FPCCI) Standing Committee on Agriculture proposes a Ushr tax on farmland. They aim to bring the agriculture sector into the tax net.
The committee has proposed;
- 10% tax on harvests from irrigated land
- 5% annual tax on rainwater-dependent land
This move is intended to ensure that the agriculture sector, which has historically been exempt from many forms of taxation, contributes its fair share to the national revenue. The proposed taxes aim to balance the revenue generation with the facilitation of the agriculture sector to maintain its productivity and growth.
Sales Tax Exemption for Farming Inputs
Committee Convener Ahmad Jawad supports agricultural income taxation but emphasizes that revenue generation from the agriculture sector should be balanced with sector facilitation. He calls for relief on agricultural tube wells, similar to the Rs10-per-unit reduction in industrial tariffs. This proposed tax relief aims to mitigate the financial burden on farmers and ensure that the agriculture sector remains viable.
Current Challenges
The agriculture sector faces several challenges, which include:
- Increase in petroleum levy
- Imposition of sales tax on tractors
- Reclassification of DAP fertilizer impacting costs
- Potential hike in electricity rates for tube wells
- Reduction in urea subsidy from Rs25 billion to Rs3 billion
These challenges compound the difficulties faced by farmers, making it imperative for the government to consider these factors while implementing new tax measures.
Economic Concerns
- Federal government’s 2% annual growth target for the agriculture sector for the fiscal year starting July 2024: This ambitious target may be hard to achieve if the additional financial burdens on farmers are not addressed.
- Potential rise in farming production costs making farming economically unviable: Increased costs could push many small-scale farmers out of business, reducing agricultural output.
- Shift from 1% full and final tax regime to standard tax regime for exporters: This shift could affect exporters’ profit margins significantly.
- 1% deduction on C&F value impacting exporters’ profit margins by approximately 20%: This deduction further strains the financial viability of exporting agricultural products.
- Risk of reduced fruit and vegetable exports due to new tax measures: The new tax regime could decrease the competitiveness of Pakistani agricultural products in the international market.
What is Usher?
Ushr is a form of Islamic tax on agricultural produce. It is derived from the Arabic word “usher,” meaning “tenth.” Here are some key points about Ushr:
- Religious Obligation: Ushr is mandated in Islam and is similar to Zakat but specifically applies to agricultural produce.
- Tax Rate:
- 10% on crops irrigated naturally (by rainwater or natural bodies of water).
- 5% on crops that require artificial irrigation (by human efforts such as wells or irrigation systems).
- Purpose: Like Zakat, Ushr intends to purify wealth and distribute it to those in need, supporting the community’s welfare.
- Application: Ushr is calculated on the gross production of the land before deducting any expenses or costs related to production.
- Implementation: In some countries, Ushr has been incorporated into the legal and tax system, where it is collected by government authorities and used for social welfare programs.
For additional information on property taxes in Pakistan and how they may relate to Ushr, you can read this comprehensive guide on property tax in Pakistan 2024.
Difference between Zakat and Ushr
Here’s the information in a table format:
| Aspect | Zakat | Ushr |
|---|---|---|
| Scope | Applies to various types of wealth (savings, investments, gold, silver, business inventory, livestock) | Specifically applies to agricultural produce |
| Rate | 2.5% of qualifying wealth annually | – 10% of produce from naturally irrigated land – 5% of produce from artificially irrigated land |
| Timing | Paid annually based on the lunar year | Paid at the time of each harvest |
| Applicability | Required if wealth exceeds a certain threshold (nisab) and held for a full lunar year | Applied to all agricultural produce at the time of harvest, regardless of amount |
| Purpose | Redistribution of wealth to help those in need | Redistribution of agricultural produce to help those in need |
| Collection | Can be paid directly to eligible recipients or through a collection authority | Often collected by local authorities or paid directly to the needy at harvest time |
Zakat and Ushr Ordinance
The Zakat and Ushr Ordinance provides a structured approach to managing these important Islamic financial obligations. It aims to enhance social welfare and economic equity within the community. For more detailed information on Zakat and Ushr, including guidelines, calculations, and distribution methods, please visit the official Zakat website here.
Committee Convener Ahmad Jawad’s Views
Ahmad Jawad has been vocal about the need for a balanced approach to taxing the agriculture sector. While he supports the notion of agricultural income taxation, he stresses that any revenue generation should not come at the expense of the sector’s growth. Jawad advocates for measures such as the reduction in tariffs for agricultural tube wells, similar to those granted to the industrial sector.
Detailed Economic Impact Analysis
The proposed Ushr tax is part of a broader strategy to increase the tax base in Pakistan. However, its implementation comes with significant economic concerns. If not managed carefully, the additional financial burden on farmers could lead to a decline in agricultural productivity. This would not only affect food security in Pakistan but also have a ripple effect on related industries.
Historical Context of Ushr and Zakat in Pakistan
Ushr and Zakat have deep roots in Islamic history and have been part of the socio-economic fabric of many Muslim-majority countries, including Pakistan. Historically, these taxes have been used to support social welfare programs and provide for the needy. The reintroduction and enforcement of these taxes in modern times aim to revive these traditional forms of wealth redistribution to address current economic challenges.
Future Implications and Predictions
The introduction of the Ushr tax could set a precedent for further tax reforms in Pakistan’s agriculture sector. If successful, it may lead to a more equitable distribution of tax burdens across different economic sectors. However, careful monitoring and adjustments will be necessary to ensure that the new tax regime does not adversely affect agricultural productivity and overall economic stability.
Conclusion
The proposed Ushr tax represents a significant shift in Pakistan’s approach to agricultural taxation. While it aims to bring more revenue into the national coffers, it must be implemented with caution to avoid placing undue stress on farmers. By balancing tax collection with measures to support the agriculture sector, the government can ensure sustainable growth and economic stability.
FAQs
How will the Ushr tax affect small-scale farmers?
The Ushr tax will impose a 10% tax on harvests from irrigated land and a 5% annual tax on rainwater-dependent land. This may significantly impact small-scale farmers who rely heavily on their agricultural produce for their livelihood. However, measures such as tax relief on farming inputs and subsidies may help mitigate these effects.
What measures are being proposed to support farmers amidst the new tax regime?
To support farmers, proposals include relief on agricultural tube wells and a reduction in tariffs for agricultural inputs. These measures aim to balance the tax burden and ensure that farming remains economically viable.
Is there a possibility of exemption from Ushr tax for certain farmers?
While the proposed Ushr tax is intended to apply broadly, there may be exemptions or relief measures for small-scale or subsistence farmers to ensure they are not disproportionately affected. The specifics of such exemptions would likely be outlined in the final implementation of the tax policy.