LAHORE: To make Agriculture Income Tax (AIT) more meaningful in the total provincial revenue collection, the Punjab government is reviewing its mechanism and AIT rates, and subsequently, it intends to gradually increase its rates in line with principles of equity and progressive taxation.
This was the part of Revenue Mobilisation Strategy and Plan for fiscal years 2023/24-2025/26, formulated by the Punjab Finance Department.
As per the document, the primary objective of the Revenue Mobilisation Strategy was to achieve high growth in the own-source tax revenue (OSTR) of Punjab and a higher OSTR-to-GDP ratio thereby increasing the fiscal space to provide additional, and better quality, services to citizens along with ensuring necessary infrastructure investments to support the economic growth of the province.
The Agricultural Income Tax was levied through the Punjab Agricultural Income Tax Act 1997 and it was levied as a land-based tax depending on the size of landholdings, or an income-based tax depending on the income earned by the landowner, whichever was higher.
As per the document, collection from this tax in recent years has hovered around Rs 2 billion per year, which contributes less than 1 percent to the Punjab government’s OSTR despite a much larger share of agriculture in the provincial economy (around 23 percent of Punjab’s GDP in the fiscal year 2021). It pointed out that the contribution of agricultural income tax could not be expected to match the agriculture sector’s share in the economy as most landholdings were very small and comprised of farm sizes of 5 acres or less with limited earnings potential.
However, it still has the potential to earn more revenue for Punjab after fixing the issues relating to capacity and enforcement; even the incomes of the few taxpayers owning large farms were not being properly assessed and the tax collection was quite low.
“The potential of Agricultural Income Tax has been adversely affected for various reasons, which could be addressed through appropriate policy measures. The government was committed to reforming the Agricultural Income Tax to make it fair and progressive,” it added.
The government intends to address the low tax rates; at present, the rates of Agricultural Income Tax are much lower than those of the federal government on income from salary or business. It argued that this was against the principle of horizontal equity, which requires that persons earning similar incomes should be paying similar taxes.
Although the document did not suggest or specify possible new AIT rates, but it did say the rates of Agricultural Income Tax would be reviewed and gradually increased in line with principles of equity and progressive taxation.
To centralise land records and administrative processes, which would help in assessing AIT, the government intends to introduce a mechanism for proper maintenance, updating and institutionalisation of existing automated databases. The document pointed out that Punjab’s Board of Revenue has made significant progress towards the automation of databases, including land records and girdawari (bi-annual assessment of crops and production).
“The government would ensure that the mechanisms for proper maintenance and updating of these databases were institutionalised,” it added.
To make payment of AIT less cumbersome, the government planning to introduce payment of Agricultural Income Tax through the E-pay system, an official online payment system.
Copyright Business Recorder, 2023
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