May 31 - June 6, 20

All efforts of the successive governments to make grounds for imposition of taxes on income of agriculture sector have met a tragic end because of the immediate but powerful oppositions erupted effusively from quarters who hold the influential positions in the state functionaries or sitting where the commands originate from.

Dr Hafiz Sheikh Finance Adviser to Prime Minister said the government wants to bring in to tax net incomes of agriculture sector, although he did not give the timeline for the curtain raising from the wealth of land owners. It is good omen if it would be done from next year since the government must look for alternatives to taxing inflation-stricken masses and only then fiscal tightening can be popular.

Short of liquidity, the government is eyeing to impose new taxes from the next fiscal year. However, if it wants to protect the people from yet another rage of floods of price hikes, direct taxing will be all possible option. Agriculture income taxing is one of such options.

Although, the government collects income taxes from the agriculture sector, the volume is extremely disproportionate to the sectoral incomes. Aside by tax exemption given to the landholders, presumptive taxes also keep the tax volume small.

It is an irony that a sector that forms an almost quarter of the economy, Pakistan's gross domestic products, has a very small share of one per cent in the taxes generated from all taxable incomes in the country. Pakistan's total GDP is of around 170 billion dollars and one can calculate on fingertips what portion the agriculture sector would stand up with. National exchequer gets Rs1250 to 1300 billion from direct and indirect taxes-that roughly comes around $15 billion at the rupee parity of Rs84. This indicates that agriculture sector chips in a little over 0.15 billion dollar to the government treasury.

Agriculture sector of the country is important for the economy because of its being major driver of domestic economic activities within the country. Importantly, sixty per cent of the work forces are associated with the sector directly or indirectly. This sector earns significant foreign exchange for the country. Textile sector, which is leading foreign exchange earner for the country, takes backend inputs from the agriculture. Raw materials provided from the agriculture sector make the industrial base of the country. Pakistan is known in the world for creating renowned brands of garments. Additionally, the country exports cotton and cotton yarn to bellwether textile manufacturing countries of the world. Alone textile value added products and agriculture produces account for over 70 per cent of the total exports from the country.

With this huge contribution towards the economy, it is obvious that people expect a heavy amount from the sector for the development funds mainly built by the taxes. It is, however, a fact that state funds allocated for the development of agriculture sector are insufficient to change the dilapidated state of the sector. Whys are numerous-one maybe being the same small share of agriculture in aggregate tax generation. Nevertheless, in proportion to resources available to the sector and wealth generated by it tax amount is negligible. Even those who raise the issue of the present underdeveloped and underfunded state of affairs of agriculture wish for sizeable shares for the national treasury from the incomes earned by the agriculture sector. They said if adequate taxes were collected from the agriculture incomes, there would be no need for the government to weigh down on masses by increasing the numbers of indirect taxes. There will be no need of value added tax, which the government plans to implement from the next fiscal year, nor will the situation necessitate the cut-off of subsidies on consumer products, believe some analysts. If agriculture sector pays taxes in accordance with its size, then there is obviously no doubt that volume of taxes will receive a timely thrust. The expected amounts can surpass the estimated annual collection of Rs500 to 600 billion through value added tax. In other words, VAT collection will be funding the whole public sector development programme (PSDP) of next fiscal year, which is said to be 663 billion rupees.

Government needs funds for administration, to run public welfare programmes, for infrastructure developments, and for uplifts of education, health, and other sectors. Tax to GDP ratio in Pakistan is below 10 per cent, therefore the government intends to increase the ratio. For it, spate of new taxes are planned for the future. Since the source of money for the government is mainly taxes, which form over 65 per cent of total tax and nontax revenues, low tax base creates paucity of funds to deprive many pro-poor sectors of required funding.

A large population of the country lives in rural areas most of them are underdeveloped. Additional income will not only increase budgetary allocations to different essential sectors, it will also open door to uplifting rural economy of the country.

At this point of time when the economy is bristled with colossal foreign loans, the government has to do something to generate funds for debt servicing. Taxing agriculture means stopgap solution as well as economic sustainability in the end.

The poor economy cannot afford that the government resorts to pit consumers against the vagaries of life. Unabated rise in prices of consumer goods have already made the lives of common people miserable. Government has lost control over factors causing rise in prices, even though they are controllable.

Fears are abound that taxing agriculture will lead a big food price storm across the country. Agriculture analysts deny the fear as baseless as they think such taxation will rein in rise in food prices.

International financial institutions running lending programmes in Pakistan also advocate agriculture income tax and find it pertinent source of reimbursement, yet in this case they gave in pressure tactics what they employ to make government implement VAT, petroleum development levy, and remove subsidies.