FINANCE DIVISION FOR AGRI-TAX MECHANISM
Apr 16 - 22, 2012
The finance division has prepared a summary for the consideration of council of common interest (CCI) seeking guidelines for harmonization of agriculture income tax policy in the provinces for badly needed enhancement in revenue collection and eliminating inequity in the overall tax system of the country. It is a welcome beginning, but at the same time, it was made clear that the government has no intention to enforce it during the coming financial year starting from coming month of July. The Finance Minister, in his press briefing in Islamabad last week, categorically stated that no new tax would be imposed in the coming budget. Even otherwise, it was not expected from the present government, which was surviving on the support of landed aristocracy, that it would take any step and any action to annoy them especially on the eve of general election in the country. This is more important for the present ruling class than the national interest.
The timing of submitting the summary by the finance division to the council of common interest suggests that its main purpose was to pacify the economic writers within the country and the international donor agencies who were highly critical of the exemption of income from agriculture from tax net which they described not only as unjust but as a criminal favor to a rich class. Agriculture income tax has been a subject of public debate for years and is widely perceived not only a distortion in the country tax system and but also an acute source of inequity. The powerful landed aristocracy, which comprises majority in our parliament, managed that all such hue and cry against this injustice was just ignored. But, perhaps the time has come that it can no longer be ignored.
The finance division has also conceded some of these points and urged the council to look into this matter urgently and remove the new complications in this sphere after the passage of 18th amendment under which this subject has been transferred to the provinces. It said that the federal government would be willing to extend any support, within the existing constitutional arrangements, to facilitate this process, both in strengthening the law and building/providing capacity for exploiting potential of this tax. It future stated that a great majority of farmers are owners of substantial holding with substantial amount of income and are in a position to pay its due to the government to ensure equity and fairness in the society.
This becomes particularly important in view of the fact that in recent year's farmer's income has been rising and this year alone the prices of key crops have witnessed income of more than 30 per cent. The summary endorsed the common perception.
According to the experts, the dangerous trend of the rising budget deficit will continue until the government takes serious measures to broaden the tax base by bringing all types of income into the net and improve the tax-to-GDP ratio to at least 17/18 per cent from present about 10 per cent, which would still be lower range according to the world standard. Pakistan is perhaps the only country in the world where tax-to-GDP ratio is falling instead of rising. Five years back, this ratio was over 13 per cent from where it came down to below 10 per cent last year. Experts attribute this fall to the rising corruption in the country.
Imposition of tax on agriculture sector or the farm income has been an issue since the inception of Pakistan, but grouping amongst the feudal lords, civil and military bureaucrats have successfully kept these incomes out of trajectory of taxation mechanism. Every voice demanding land reforms or levy of a tax on farm income has been crushed by force or other tactics.
Independent economists of world repute have been advising the managers of Pakistan's economy since long that they, instead of increasing tax rates, should focus on revamping and reforming the tax structure bringing all incomes into tax net and by closing all loopholes in the system to increase the revenue generation. Exempting rich landlords from payment of income tax appears to be a criminal act under the present difficult difficulties.