. .

Agri-tax: A challenging task

  1. The NFC award
  2. The Sugar crisis
  3. Agri-tax: A challenging task
  4. Water crisis in Karachi
  5. Irrigation scenario in Pakistan

A committee of experts will evaluate the exsistig taxation structure in the agriculture sector

From Shamim Ahmed Rizvi, Islamabad
Jun 12 - 18 -2000

The Federal Cabinet has finally approved the levy of income tax on farm income from July 1, 2000. The Chief Executive who presided the cabinet meeting which was briefed in details by Dr. Tariq Siddiqui Vice Chancellor Quaid-i-Azam University and head of the experts committee for the evaluation and recommendations on existing taxation structure in the Agriculture sector. He gave various recommendations including measures to be taken for imposition of farm tax by the respective provincial governments. The meeting was also attended by the provincial governors, Finance and Food and Agriculture Ministers of the four provinces.

Presiding over the meeting, General Musharraf directed that the existing system of collection of revenues in various categories in the agriculture sector should also be reviewed while evolving the new tax strategy. Details in this regard, be announced by the federal and provincial finance ministers as part of their respective budget speeches. The Chief Executive directed the finance minister and the provinces to prepare a tax strategy wherein the small farmers' interests could be protected while ensuring that all high agricultural income groups contribute appropriately towards the country's tax base and building a stronger and prosperous Pakistan.

Taxing farm income has always been a challenge for government. It has been a considered view of the economists and had been repeatedly vouched by the international donor agencies that it was criminal to keep farm income out of tax net, but the powerful feudal lobby, which dominated the Parliament, always successfully and tactfully defied all attempts by various governments in the past to bring this highly potential segment into normal tax net. Last year when the cash starved government of Pakistan was looking into various ways to broaden the tax net, the IMF and World Bank once again emphasized the need of bringing farm income into tax net if the government really intended to have a sizable increase in its revenues without causing any hardship to the common people. Due to their political expediencies, the previous government with all its heavy mandate, could not accomplish the task.

It was expected that the government of General Musharraf, which is free from any such political compulsions and does not need the political support of the feudals, can deliver by implementing this measure repeatedly emphasized by the IMF and World Bank and economic managers of the country both within and outside the government.

The decision to tax the farm sector rationally and equitably is encouraging because it represents a serious effort for the first time by the government to tax the large holdings as well as the income of Pakistan's affluent and powerful land-owning class. Since the creation of Pakistan, the agriculture sector has not been taxed in spite of the fact that over the last several decades, as a result of the induction of advanced farm technology and inputs, the productivity of, and income from, farming have substantially increased. Because of this exemption, Pakistan's entire taxation system has remained lopsided and skewed.

In deciding to end this discrimination, the government has assured the IMF and the World Bank that it will abolish all forms of subsidies and concessionary benefits for the agriculture sector by the end of the fiscal year 2000-2001 and would start collecting income tax from the better-off among the growers. This is a change from the past practice in relation to the farm sector, which has been receiving subsidies in the form of cheap fertilizer, irrigation water, power, seeds, pesticides and easy and concessionary credits from the Agriculture Development Bank. While the successive governments have been very supportive, even generous to this, there is very little that this sector has done in the way of making a return payment to the exchequer for all the exemptions, concessions and advances. Its produce may have earned much needed foreign exchange for the country, but that is an incidental rather than a direct contribution to public coffers.

Indeed, the biggest complaint of other tax-paying economic and professional sectors has been that agriculture is being exempted from any significant tax liability on the plea that this sector is still in its infancy and any move to tax it would affect its productivity and potential. This has long since ceased to be a valid or even a plausible argument. The plain truth is that the biggest beneficiary of the over extended exemption have been the big-landlords, whose ownership of vast tracts of land is itself a reason for low production since they are usually reluctant to plough back their profits into farming and increase yields. These powerful feudal lords have over the years been able to elude two attempts at land reforms by adopting various methods of cheating and deception to retain their considerable holdings. If any concessions are to be made, these should be made to those whose land is not productive enough for natural reasons like drought and lack of fertility and irrigation and to those small cultivators who are engaged in subsistence farming because of the small size of their holdings and who do not have easy access to credit and output and yield-raising inputs and technology.

The move to impose taxes and levies on the agriculture sector would help increase the overall revenue generation capacity, which in turn will benefit farming itself in terms of better provision of inputs and facilities for its progress and improvement. The challenge before the government now is to push ahead with this taxation move and work towards efficient collection of the dues through its channels of revenue assessment and collection. If this is done, it will be a major step forward for both the economy and the country.

Although it has not been confirmed from the relevant circles, it is commonly believed that the tax will be levied on acerage basis at a uniform rate in all the four provinces. Small holding upto 25 acres may be exempted altogether.