Dec 08 - 21, 2008

Under intense pressure from the feudal lobby, overwhelmingly represented in the National and Provincial assemblies, Financial Advisor Shaukat Tarin has to back out from his earlier announcement that Agriculture would be among the sectors income from which would be taxed as a part of new measures to boost revenue badly needed to meet the financial difficulties presently faced by the nation.

Tarin who, perhaps, had no previous experience of dealing with these powerful sacred cows had made a genuine and just statement before the media that all income generating sectors including farm would have to be taxed to enhance revenues to tide over the ongoing financial difficulties. He did no not know that country's feudal lobby which dominates the legislatures has never allowed the State to touch their fabulous earned income from their vast lands ploughed by the Harris and Muzzaras.

A few attempts were made in the past as well but all failed. Perhaps the only objective of these rich feudal to come to the assemblies is to protect their vested interest. They may belong to different parties with conflicting interest and programmes but they demonstrate rare unity in the house when their vested interests are even remotely threatened by any non feudal member.

This time Shaukat Tarin a non feudal met the same fate. Faced with a stiff resistance in both National and Punjab assemblies, as demonstrated by a rare unity among members of all the political parties opposing the move, he announced that the government has no plans to tax agriculture and such a step, if taken, would come after 23 months of IMF programme. The powerful landed gentry seemed determined not to let it happen even at the risk of scrapping of the IMF support programme. Perhaps IMF was also aware of this fact. That is why it did not particularly mention tax on agriculture income in conditionality.

The November 25 communiqu╚ of the IMF executive board, however, briefly states that fiscal adjustment will be primarily achieved by phasing out energy subsidies and strengthening revenue mobilization through tax policy and administrative measures. The thrust of the programme ˇ and its conditionality - is primarily based on the targets and measures that Islamabad has set for the next two years.

Juan Carlos DiTata, a senior IMF official, during a question-answer session, was specifically asked about agricultural tax. He did not give a categorical reply. He said that in the medium-term the Pakistan government wanted to increase the tax ratio significantly by three to four percentage points of GDP through the year 2012/13. And this would require a number of measures including elimination of exemptions in the 'general sales tax, elimination of exemptions for the income tax, including possibly commercial agriculture, and also, at some point, introduction of a value added tax with a minimum number of exemptions. During a visit to Washington in October to hold talks with the IMF officials, Tarin had promised to bring all sectors, including agriculture, under net, saying there would be no 'sacred-cows'. It makes one recall how similar promises Pakistan had been making to the IMF in the past to seek loans whenever it was in serious financial trouble and then had been managing to wriggle out of its commitments.

In a rare demonstration of bipartisan consensus, the ruling and opposition parliamentarians in the National Assembly have warned the government that any move to impose agriculture tax will be firmly resisted, and that every farmer would come out on the street. Speaking on a point of order, the parliamentarians have equated the levying of agricultural tax to making the country hostage to the global market.

The main argument on which the parliamentarians have based their position is that the rise in prices of diesel and other agricultural inputs has made life difficult for the growers. Hence they should not be taxed. This is not the first time when the parliamentarians have come out openly against imposition of agriculture tax. In fact, any such initiative has always been opposed by big landlords, largely because of the implications it will have for the country's traditional power structure. The "pro-tax" and "anti-tax" lobbies have been hotly debating the issue both inside and outside the parliament over the decades, with the former invariably having the final say. It will be recalled that early this year, the Ministry of Food and Agriculture had undertaken a fresh study to look into the possibilities of taxing farm income to open a new avenue of revenue generation and help the government face the financial challenges that lay ahead. Those challenges have since arrived on the scene, with the Gilani government having recently concluded a $7.6 billion IMF bailout package with tough conditionalities, after knocked at almost every door in the world. This shows the dire financial squeeze the country is caught in today.

We believe that the issue of agriculture tax is not as complicated or controversial as the partisans on both sides of the great divide have made it. It is quite simple: under the universal principle of taxation it would be unfair and illogical to make a distinction between agricultural and non-agricultural incomes because all earners of taxable income, whether from agricultural or non-agricultural sources, must pay income taxes. Second, the tax is not levied on agriculture sector as such, but only on the taxable income accruing from it.

Just as incomes below a certain level are exempted from tax in non-agricultural sectors for purposes of taxation, the same principle has to be applied to agricultural income. Whenever the question of taxing farm income has come under consideration, it has already been conceded that likewise of salaried class land holders having 12.5 acres or less would be exempted from this tax. The feudal lords often try to confuse the issue by equating themselves with small growers. According to the latest study out of the total cultivated area of 22 million hectors only 44% (about 10 million hectors) fall under the category of 12.5 acres thus leaving 12 million hectares, mostly owned by big landlords, to be taxed for contribution to the national kitty. It is estimated that by taxing it on an average rate of 20 percent it would generate about Rs.40billion annually to the state revenues. This will also improve our tax to GDP ratio. Out of Pakistan total GDP size agriculture sector contributes over 20%.