AGRICULTURE STILL OUT OF TAX NET
July 05 - 11, 2010
The federal budget for the year 2010-11 showing a whopping deficit Rs685 billion between projected revenues and expenditure has been passed by the National Assembly. According to independent economic experts this trend of rising budget deficit will continue till government takes serious measures to improve the tax to GDP ratio to the level of 18 to 20 percent as prevailing in other countries in the region.
Unfortunately in Pakistan this ratio is falling instead of rising and has come down to a dismally low level of about 9.5 percent from about 13 percent about 5 years back. The former finance advisor Shaukat Tareen, who presented the last year budget, in his speech, had rightly pointed out that low tax to GDP ratio was the root cause of economic ills. We must improve it by at least 5 per cent bringing it to 15 from its present level of about 10 percent. He emphasized that the tax treatment of income must be uniform and nondiscriminatory without regard of its origin. There should be no exemption in taxes on income and consumption except for income of charitable trust or consumption of food stuff. All other type of income including income from agriculture should be equitably taxed besides dealing with an iron hand with all types of tax evaders and the corrupt officials in the tax collecting system helping tax dodger and evaders. As a result of his thinking strong feudal lobby overwhelmingly represented in the national and provincial assemblies created a situation forcing Shaukat Tareen, a thorough professional and non-feudal, to resign.
The incumbent finance minister has preferred to play safe.
Imposition of tax on agriculture sector or farm incomes has been an issue since the inception of Pakistan but grouping amongst feudal lords, civil and military bureaucrats and agricultural technocrats have successfully kept these incomes out of the trajectory of taxation mechanism. In this respect, India and China remained fortunate as both countries disallowed its citizens to keep agriculture land beyond a specific limit and hence eliminated feudalism once for all from their respective countries. But in Pakistan, unfortunately, every voice favouring imposition of agriculture tax has been given exemplary punishment. Former Finance Minster Shaukat Tarin was the latest example in this regard who once vowed to levy agri-tax in the next fiscal year but was so pressurised by the vested interested lobby that he had to quit his job.
First time in the history of the country, the influential feudal association had to face a serious challenge in the eighties when Pakistan had to seek the assistance of the International Monetary Fund (IMF), which, in turn, laid down tax on farm incomes as one of its conditions for help. Despite being in dire need of IMF financial aid on several occasions and the promises made by successive governments to enforce the levy, it could not be levied as all succeeding governments bowed down before this powerful lobby.
Independent economists, IMF and World Bank repeatedly remarked 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. Agricultural income tax has immense potential to generate billions of rupees in government revenue if it imposed effectively and indiscriminately. But powerful landholders have always used their political clout to counter efforts to tap the potential of this tax.
It is an open secret that in past successive political governments could not take bold step in this regard as they have to garner support from this powerful lobby in general elections but the pity is that governments are run by generals of army including President Ayub Khan, Ziaul Haq and Musharraf, who were free from any such political compulsions and never needed the political support, also could not impose such tax and left this critical issue for the next political governments.
It is to be noted that once the government of General Pervez Musarraf constituted a committee to issue firm directives to all the provincial governments to levy a tax on agriculture income at a uniform rate in 2001. The decision was taken in a meeting of federal cabinet chaired by the Musharraf, which approved the recommendations of the implementation committee on agriculture income tax to harmonise provincial legislation. As recommended by the committee, the provinces had to issue notifications making only owners of 50 acres or more to file a two-page agriculture income tax return. It was supposed to be applicable to only those landlords whose taxable agriculture income exceeded the exempted limit of Rs80,000. The total numbers of such farmers were 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 penalties for failure to furnish IT return and for default in payment but all in vain as the powerful lobby of the country made Musharraf, who has had all the powers to rule, bowed down before them once again.