Pakistan’s efforts to increase tax collection from agriculture face a major challenge: determining how much farmers actually earn.
Fragmented transactions, volatile crop prices, unreliable yield data, rising input costs and limited digital records make it difficult for authorities to establish accurate agricultural income and taxable earnings, experts said.
They believe a digital farm-to-fork transaction trail could help address the problem by combining satellite-based yield estimates, electronic weighing, crop-quality records and digitally verified payments.
Such a system could give the government a clearer picture of agricultural income while bringing traders, processors and other participants in the supply chain into the documented economy.
Agriculture Remains Major Part of Pakistan Economy
Agriculture accounted for 23.44% of Pakistan’s GDP in fiscal year 2025-26 and recorded growth of 2.89%, according to the Pakistan Economic Survey.
The sector also employs more than 37% of the country’s labour force, highlighting its importance to economic activity and employment.
However, experts cautioned that agriculture’s contribution to GDP should not automatically be treated as taxable income.
Millions of Small Farmers Complicate Tax Collection
Muhammad Ali Iqbal, President of Concave Agri Services, said Pakistan has more than eight million farmers, with the overwhelming majority cultivating less than five acres.
According to him, this fragmented structure makes it difficult to apply a uniform agricultural taxation model.
He also pointed to stagnant commodity prices, rising input costs and uncertain yields as factors that complicate the calculation of farmers’ actual earnings.
Iqbal said an important issue was determining where agricultural revenue ultimately accrues because a substantial portion of the value generated from farm production is captured later by manufacturing, food processing, exports and other businesses.
Fragmented Transactions Make Farm Income Difficult to Measure
Agricultural transactions remain largely fragmented and undocumented, further complicating tax assessment.
Iqbal said farmers and agricultural SMEs can receive payments after significant delays, making it difficult to determine their actual income and corresponding tax liabilities.
He argued that the Federal Board of Revenue (FBR) needs technology-backed mechanisms to estimate agricultural revenue at district and tehsil levels rather than depending entirely on self-reported income.
Satellite imagery, remote sensing and improved algorithms could potentially be used to estimate cultivated areas and crop yields and cross-check information provided by farmers.
Crop Price Volatility Adds to Tax Assessment Challenge
Price fluctuations create another major difficulty in determining agricultural profitability.
Iqbal cited chillies as an example, saying their current price was around 60% of the level recorded two years earlier.
When crop prices decline sharply while production and input costs remain uncertain, calculating farmers’ taxable income becomes more complicated.
He said tax authorities therefore need reliable systems for price discovery, yield estimation and income determination before imposing taxes on agricultural earnings.
Agricultural Value Chain Extends Beyond Farmers
The lack of documentation is not limited to farmers.
Agricultural commodities such as tomatoes and chillies are purchased by food companies and subsequently undergo processing, branding and distribution.
Iqbal said value generated from agricultural production can therefore appear in the accounts of food-processing, textile, leather and other businesses.
This makes it difficult to assess agricultural taxation in isolation from the broader value chain.
He also called for FBR and Securities and Exchange Commission of Pakistan (SECP) regulations to create a more conducive environment for startups and companies operating in agriculture, food security and agritech.
Compliance Burden Can Discourage Formalisation
According to Iqbal, documentation requirements for businesses sourcing directly from farmers can create significant compliance challenges.
Requirements relating to filer and non-filer status can be particularly difficult for private limited companies dealing with large numbers of agricultural producers.
Some businesses may consequently prefer less formal structures, leaving transactions and potential tax contributions outside the documented economy.
Experts Call for Digital Farm-to-Fork System
Aamer Hayat Bhandara of Agriculture Republic called for digitisation across the entire agricultural value chain.
He proposed a digital transaction directory covering the process from farm to fork, allowing transactions between farmers, markets and buyers to be recorded and verified.
Even the movement of commodities into mandis could be documented through electronic weighing systems capable of recording the quantity and quality of produce before transactions are completed.
Such a mechanism could provide benefits to farmers, traders and the government by creating verifiable transaction records, improving transparency and potentially expanding the tax base.
GDP Contribution Does Not Equal Taxable Income
Mahmood Nawaz Shah, President of Sindh Abadghar Board, cautioned against directly equating agriculture’s GDP contribution with taxable agricultural income.
He cited wheat as an example, noting that farmers can incur losses even when their production contributes to national GDP.
According to Shah, wheat production remained substantial during the relevant period, while farmers in some areas sold their crop at prices significantly below government-announced rates.
The distinction is important because GDP measures economic production, whereas taxation is ultimately linked to income and profitability.
Agricultural Tax Potential Should Reflect Profitability
Shah suggested that agricultural tax potential should be calculated pragmatically using average profitability over five- or seven-year periods.
He argued that the entire value of agricultural output should not be treated as taxable income.
At the same time, he acknowledged that agricultural tax collections could potentially be significantly higher if profitability and documentation were assessed more accurately.
Provincial and Federal Tax Systems Add Complexity
Shah also highlighted the compliance challenges faced by agricultural taxpayers.
Agricultural income tax is administered at the provincial level, while taxpayers may also have obligations involving the FBR.
He argued that individuals who pay agricultural income tax and submit the required returns should be appropriately recognised within the national tax system rather than being treated differently from taxpayers in other sectors.
Climate Risks Affect Agricultural Profitability
Shah rejected the argument that agriculture’s large share of employment automatically means the sector should make an equivalent contribution to tax revenues.
Although agriculture employs more than 37% of the labour force, agricultural income is distributed among a much larger number of people than in many other sectors.
Farmers are also exposed to floods, weather shocks and other natural risks.
A crop failure can affect not only current-year income but also a farmer’s ability to finance the next production cycle.
Shah questioned whether higher tax rates would encourage formalisation when farmers and agricultural businesses already face substantial production and climate-related risks.
Broader Agricultural Value Chain Needs to Be Documented
Another expert stressed the need to distinguish between “farmer income tax” and the broader concept of “agricultural income tax”.
The latter could encompass a much wider network, including traders, input suppliers, mandis, warehouses and businesses involved in agricultural commerce.
Provincial governments already collect certain agriculture-related taxes, including land and water-related charges, while the federal tax system also addresses agricultural income under applicable provisions.
The expert argued that the taxation debate should therefore focus on restructuring and documenting the entire agricultural value chain rather than treating farmers as the sole taxable participants.
FBR Data-Sharing Could Support Better Agricultural Taxation
The need for improved agricultural data is already recognised institutionally.
The FBR has entered into data-sharing arrangements with provincial revenue authorities, including Sindh and Balochistan, covering land ownership and agricultural income information.
Experts believe the next step should be to move beyond land records and develop transaction-level data covering production, yields, prices, crop quality, payments and commodity movements.
Such information could help policymakers distinguish genuine farm profits from gross agricultural output and identify where value and income are actually being generated across the supply chain.
Digitalisation Must Include Small Farmers
Experts stressed that digitisation should be accompanied by financial and digital literacy support, particularly for small farmers.
Without adequate support, formalisation could increase compliance costs while leaving farmers without the tools required to maintain accurate records.
A successful system would therefore need to combine technology with accessible documentation, financial services and support for farmers operating at a small scale.
Farm-to-Fork Data Could Reshape Agricultural Tax Base
The central challenge is not simply whether agriculture should contribute more tax revenue.
The larger issue is how the government can accurately identify taxable income in a sector characterised by price volatility, climate risks, fragmented markets and millions of small producers.
A technology-enabled farm-to-fork system could provide a missing link between agricultural production and measurable taxable income.
By combining production data, satellite estimates, electronic weighing, quality records, price information and digitally verified payments, authorities could develop a clearer picture of profitability across the agricultural value chain.
Such a system could potentially improve tax assessment while also creating greater transparency for farmers, traders, processors and policymakers.