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Tax on agriculture income

Levying of tax on farm incomes has been an issue as old as the state of Pakistan

From Shamim Ahmed Rizvi, Islamabad
May 21 - Jun 03, 2001

It is gratifying to note that, though belated, the government of Gen. Pervez Musharraf has issued firm directive to all the provincial governments to levy a tax on agriculture income at a uniform rate w.e.f. 1.7.2001. Although basic exemption have been raised generously, it may be viewed as a good beginning provided enforced with a strong will.

The decision was taken in a meeting of federal cabinet chaired by the chief executive which approved the recommendations of the implementation committee on Agriculture Income Tax to harmonise provincial legislations on the subject. As recommended by the committee, the provinces will issue notifications making only owners of 50 acres or more to file a two-page Agriculture Income Tax return. It will be applicable to only those whose taxable agriculture income exceeds the exempted limit of Rs. 80,000. The total number of such farmer assessees is reported to be only about 20,000 in the entire country with an average of no more than 200 such agriculture income tax payees per district.

Approval was also accorded to empower the provincial governments through their respective legislature, to grant remission of agriculture income tax in case of calamity or crop failure. Personal hearing has to be ensured before imposition of penalty. The cabinet also approved toning down of penalties for failure to furnish IT returns and for default in payment.

Levying of tax on farm incomes has been an issue as old as the state of Pakistan, but an alliance of feudal lords, civil and military bureaucrats and agricultural technocrats has successfully kept these incomes out of the orbit of taxation for 54 years.

A serious challenge to this alliance came in the eighties when Pakistan had to seek the assistance of the International Monetary Fund, which, in turn, laid down tax on farm incomes as one of its conditions for help. Despite being in dire need of IMF aid on several occasions and the promises made by successive governments to enforce the levy, they avoided doing so, on one pretext or another, for over a decade and a half.

It has been a considered view of independent economists in the country and has been repeatedly vouched by IMF and World Bank that "It is 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.

Emphasizing the need to bring farm income under normal tax net, the donor agencies have pointed out more than once that exemption of this sector from normal income tax laws has prompted industrialists to buy vast lands to hide their income. Now it is an established practice of all business houses to hide their income under the garb of agriculture. Large industrial houses in the country had also bought agri-farms to hide their incomes. So, taxing the farm sector is also important to check tax evasion.

It was expected from the government of General Pervez 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 present government has been commended by the donor agencies for earnestly trying to meet their conditionalities. It is reportedly again under the pressure of the IMF that the federal cabinet has now acted on the recommendation of an experts committee set up earlier to levy a tax on farm income at a uniform rate in all the four provinces from the next fiscal year, and issued a directive to this effect. One only hopes that this time the tax would not only be levied but fully realized.