GST On Agriculture Sector in Pakistan: Taxability of Agri-Produce and Farm Equipment

The GST on agriculture sector in Pakistan and its impact are also very significant, shaping nation’s farm scenario. Agriculture is Pakistan’s largest industry, with about 24% of its GDP contributed by agriculture and employing almost half of the total labor force. Given that the sector already benefits from a wide range of protections to aid farmers, it is important for all concerned parties including farmers, suppliers and policymakers to have a better understanding about the GST in agriculture sector of Pakistan.

This blog discusses the important aspects of GST in agriculture, the taxability of farm equipment and yield of farmers, and recent updates on GST applicable for the agronomic sector.

Key Areas of GST

The key focus areas in GST for agriculture sector are basically about exemptions and reduced rates to reduce the tax incidence on farming operations. In Pakistan, Federal Sales Tax (GST) is governed by the Sales Tax Act, 1990 Some goods may be exempt required. The standard rate for GST is 18% as of 2025.

But there are several agriculture-specific exclusions and exemptions:

Unprocessed Agricultural Produce:

Generally, all basic food and raw Agri-produce in Pakistan are exempted from sales tax. This applies to fresh fruits and vegetables, grain, and other unprocessed items that come directly from a farmer.

Key Agri Inputs:

Fertilizers (DAP on reduced rates) and pesticides continue to be exempted or at lower levels in the past budgets. The government in its budget 2025-26 proposals did not extend GST levy to these essential inputs, which came as a big relief to farmers.

Seeds and Other Essentials:

Some agricultural supplies, like poultry feed and some seeds, are exempted from or lightly taxed.

Farm Machinery and Equipment:

Concession is accorded to imports and local purchases for some agricultural machinery, except for the normal rate unless otherwise indicated on schedules.

These focal points of GST in agriculture are designed to mitigate input costs and help spur productivity without loading it with other taxes.

Taxability of Agri-Produce and Farm Equipment

Agri-Produce

Uncultured or minimally processed agricultural products are exempted significantly if provided by growers or local suppliers. This waiver would apply to market prepared vegetables with minimal processing. However:

  • The normal GST (18%) is also liable for processed or branded products.
  • Materials sourced through intermediaries or in packaged forms may carry liability for tax.

The farm gate sales are still allowed, consistent with the policy to protect primary producers.

Farm Equipment

Farm equipment, including tractors, harvesters and irrigation equipment are common goods that generally attract sales tax of 18 per cent on import and supply. However:

  • Some categories under the Sixth Schedule or specific notifications are exempted or preferred (especially greenhouses, milking machines, and specialized equipment).
  • Local producers and importers receive favorable treatment in export-processing or other special zones.

Recent talks have showcased potential justifications, but fundamental farming machinery is taxed at higher rates than inputs, such as fertilizers.

GST Rate Changes for Agriculture Sector

The GST rate structure changes with respect to agriculture have been temporary despite mounting pressure on the economy. Key recent developments include:

  • Exemption on fertilizers and pesticides in the budget of 2025, refusal to increases (DAP had stayed at stuttered level despite being considered for increase).
  • The standard rate of GST was raised to 18% in general, but exemptions for agriculture related were maintained.
  • No major hikes on the core inputs, though inputs for fertilizer production (like natural gas) would have been under review.

These changes struck a balance between revenue requirements and sectoral support, without any liability that might push up food prices.

Impact of GST on Agricultural Sector

Effects of GST on Agriculture mixed but more protective. Exemptions for fresh produce and major inputs have helped to keep prices in check, avoiding inflation in food price while doing its bit for rural livelihoods.

Positive aspects:

  • Cheaper input costs for fertilizers and pesticides mean higher yields and access.
  • The exemptions ensure that there is no tax cascading, and investment in primary agriculture is promoted.

Challenges:

  • The tax on machinery is raising the cost of mechanization and becoming an obstacle to modernization by small farmers.
  • Potential future justifications (IMF-encouraged) could end up increasing costs if they decrease the available exemptions.

Taken together, the current system assists growth, but continued exclusions are essential to sustaining it.

Conclusion

GST on Agriculture sector in Pakistan is a protective and selective levy system. Although levy on simple farming products is almost nil, the GST is there on processed items and also on equipment for agriculture as well as in some of the inputs. The significance of major aspects of GST in agriculture, updating changes in GST rate for agriculture sector and analyzing the GST on agricultural sector are necessary for sustainable development and locomotion.

For both farmers as well as agribusinesses, the ability to keep abreast of information allows cost effective production, regulatory conformity and long-term sustainability in one of Pakistan’s key economies.