Practical Contemplation of Nexus between Agriculture Taxation and Agriculture Output Share: A Case of Pakistan

The indifference and dereliction of Pakistan’s legislators in formalizing an agricultural tax regime has unequivocally induced critical structural weaknesses in the fiscal machinery. Addressing the concern, the study has analysed the impact of agriculture taxes on the share of agriculture GDP of Pakistan and empirically investigated the long run relationship between the variables using time series data for last 23 years. It was empirically evaluated that increase in agriculture taxes led to a decrease in agriculture share of GDP. 1% increase in in the level of agricultural income tax decreased share of GDP by 0.073%. Whereas increase in land tax revenue had a significant positive effect on the agriculture share of GDP. Exempting agriculture income tax would give respite to agriculture community as done in china, where zero agriculture income tax was applied in practical. However, if income tax must be made functional then that tax rates should be revised in accordance with the income potential of agriculture lands; large land holdings be taxed, shares of the collected tax at district level should be spent on provision of local services which, in return, would help farmers increase income leading to higher income tax revenue.