Government Proposes Doubling Fertiliser Tax and New Pesticide Tax for 2025-26

The federal government’s proposal to double the excise duty on fertilisers to 10% and impose a new 5% tax on pesticides in the 2025-26 budget signals a sharp tax hike, threatening agricultural input costs and farmer profitability, with serious tax compliance implications. Our tax law firm urges clients to prepare for Federal Board of Revenue (FBR) scrutiny amid this revenue-driven strategy.

Per The Express Tribune, these measures aim to meet a Rs14.3 trillion revenue target, generating Rs50 billion through the fertiliser tax hike from the current 5% Federal Excise Duty (FED), alongside a pesticide tax potentially matching the 10% rate. A 2% reduction in the super tax rate (from 10% to 8%) risks a Rs28 billion shortfall, while agricultural income tax at 45% from January 2024 burdens farmers already facing climate challenges and withdrawn price supports. The plan to phase out Special Economic Zone (SEZ) incentives by 2035, trimming tax-free status to nine years from July 2025, reflects IMF-driven reforms under the $7 billion bailout, prioritizing market distortion reduction over farmer support, per web sources like Profit by Pakistan Today.

From a tax law perspective, increased input costs may affect deductibility of farming expenses under Section 29 of the Income Tax Ordinance, while new pesticide taxes could complicate input tax credits under Section 8B of the Sales Tax Act, 1990, requiring meticulous reconciliation. SEZ changes may trigger capital gains tax adjustments under Section 37, impacting business investments. FBR audits are likely to intensify, targeting agricultural income, as posts on X from @DrIkramulHaq highlight farmer discontent over rising costs.

Critically, the narrative of “fiscal necessity” may mask IMF overreach—web context suggests environmental concerns over fertiliser overuse are overstated, while PPP objections signal political resistance, potentially delaying implementation. Clients must brace for compliance challenges.

Our firm advises clients to review expense deductions, ensure sales tax compliance, and prepare for FBR audits, navigating this tax-heavy budget.