The Central Board of Revenue (CBR) is analysing the last three years'' data on agriculture income tax collected from provinces. This is being done to figure out the estimated tax in case the CBR collects the levy on behalf of the federal government from all the four provinces.
Sources told Business Recorder on Wednesday that a study is underway to workout revenue impact in case the tax authorities are empowered to collect provincial agriculture income tax in the provinces on the basis of income from sale of agriculture-produce from fiscal 2007-2008.
Sources said that the collection of agriculture income tax on the basis on income earned from sale of agricultural-produce in the provinces would enable the government to generate substantial funds in each province.
All the provinces are collecting this tax on the basis of land owned by the farmers. However, if the CBR is empowered to collect this tax on behalf of the provinces then there is a possibility that this tax may be collected on income earned through sale of agriculture produce. However, it seemed to be an uphill task for the federal government to persuade the landlords for the introduction of such a levy.
Sources said that the CBR is examining the provincial data on agricultural income tax to see what is the expenditure on agricultural income at the provincial level. In case the federal government collects agricultural income tax what could be the mode of collection? Sources said that the CBR has assigned the CBR Fiscal Research and Statistics Wing to thoroughly examine the provincial data for submitting viable suggestion.
The study mainly focuses on collection of tax on the basis of agriculture income instead of existing mechanism of land basis. Presently, the non-irrigated area up to 25 acres is exempted from income tax. Irrigated area up to 12.5 acres is exempted from the levy.
In the irrigated area, the land tax of Rs 150 per acre is applicable. In case of seven years old orchid, the rate of land tax is Rs 350 per acre per annum. Sources said that there is difference between the collection of tax on income basis as compared to the land basis formula.
For example, the levy of provincial income tax is the same for orchid producing fruit once in a year and the other orchid producing seasonal fruits repeatedly in one year. There is undue benefit to certain persons and simultaneously loss for others depending on the type of land. On the other hand, the mode of collection on the basis of income would definitely improve revenue collection from this head.
Sources said that the outcome of the exercise would be presented before the government for further action under the constitution. Keeping in view the importance of the agriculture for sustenance of the economy, the taxation on agriculture sector has always been negligible. This is the reason that the share of federal tax collection from agriculture sector has been only 0.12 percent of the GDP in 2003-2004. This low share indicates that effectively the entire value-added chain in the agriculture sector is nearly tax-exempt.
It is important to realise that tax collection cannot exceed the taxpaying capacity of the sectors that are liable to pay taxes under the existing legal framework. This is unfortunate that some of the majors sectors of the economy are outside the tax net for one reason or the other. Presently, the sector-wise composition of taxes is not consistent with the sector-wise composition of GDP. Given the present lop-sided structure of taxes whereby the manufacturing sector is over-burdened and the services sector that generates nearly 50 percent of the GDP is lightly taxed besides agriculture sector being totally tax exempt.
A significant change in the tax to GDP ratio beyond the existing cosmetic improvement requires bold initiatives to be taken to bring all those sectors that are generating taxable income to the tax net.
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