The clamour for taxing the income of the rich landlords is gathering momentum with not only multilaterals and bilaterals but also the people of this country, a survey carried out by Business Recorder revealed. Given the rising budget deficit attributed to the continued failure of the government to raise the tax to GDP ratio all eyes are focused on taxing the income of the rich landlords with a high degree of representation in the country's national and provincial assemblies.
The federal government has consistently maintained that farm tax is a provincial subject and it is powerless to impose a tax on the income of farmers. Economic analysts marvel at the fact that the parliament agreed on the eighteenth constitutional amendment but, with the exception of MQM, no other party supported a tax on farm income.
Under the Presidential Order No 5 issued by the Ministry of Law and Justice on the 7th National Finance Commission Award, the NFC recommended that federal and provincial governments should streamline their tax collection systems by reducing leakages and increase their revenues through efforts to improve their taxation in order to achieve 15 percent tax-to-GDP ratio by 2014-15. Provinces would initiate steps to effectively tax the agriculture and real estate sectors. Federal government and provincial governments may take necessary administrative and legislative steps accordingly, it stated.
At present, taxation of agricultural sector is a provincial subject under the Constitution. The loopholes and irregularities in the provincial tax collection system cause annual revenue loss to the tune of billions of rupees. In the absence of foolproof tax collection mechanism, the provincial governments have failed to generate any significant amount from the farm sector. Against the estimated potential of Rs 18-20 billion from this sector, the actual collection stood at nearly Rs 4-5 billion per annum, sources said.
The provincial governments had introduced Land Revenue Act in 2000 to tax agricultural income through a verification of growers` income but had done nothing to collect it. Under the Act, an income of Rs 80,000 per crop is exempted from the tax. Five per cent tax is applicable on an income of Rs 100,000, 10 percent on income of up to Rs 200,000 and 15 percent on all agricultural incomes exceeding Rs 200,000. However, the provinces have not made any efforts to get the benefits of the Land Revenue Act of 2000.
The federal government has finally asked the provinces to introduce an effective system of taxing agricultural income, real estate and wealth to honour their commitments made in the 7th NFC award and explore new avenues for taxation.
When contacted, Ibrahim Mughal, Chairman Agri-forum said, "The farmers are already paying billions of rupees as farm tax in the land mode but it is the need of the hour to check loopholes, irregularities and embezzlement in the provincial agriculture tax collection. The revenue generated from this sector should be exclusively used for the development of the agriculture sector. The money should not be used for making up the loss of Karachi Electric Supply Company (KESC) or that of the steel mill".
He added, "We, the farmers, don't want any subsidy on electricity, DAP or urea. We just want that our agricultural produce be sold at the local market at the same price as in the international market. The price of wheat in international market has reached $360 per ton while the price of the same commodity during the corresponding period last year was $207 per ton. Whereas the wheat support price fixed by the government is just Rs 950 per 40 kg. So, if we compare the price of the commodity at the local market with its rate in international market, it can be easily seen that the local farmer is suffering low profits while the price of inputs like fertilisers, DAP and urea sky-rocketed during the crop sowing season".
Analysts argue that the federal government must consider amending the Constitution to declare farm income a federal subject and collect the levy under income tax mode with the objective of introducing a transparent tax collection system for the agriculture sector at a national level.
An industrialist told this scribe that the industrial sector of Pakistan has been proposing the imposition of the agricultural income tax for a long while. "The industrial sector of Pakistan is paying huge amount of direct taxes whereas the big landlords are paying nothing at the provincial level. Farmers, who are paying meager amounts as taxes, should be compelled to pay income tax, sales tax and excise duty".
Another official suggested that the federal government be given powers to collect the agricultural income tax, as presently applicable in collection of sales tax on services. The Board must workout the 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 agri-produce. The collection of agri-income tax on the basis of income earned from sale of agri-produce in the provinces would enable the government to generate handsome amount of funds in each province as compared to the marginal collection from this head.
All the provinces ie Sindh, Punjab, KP and Balochistan are collecting this provincial tax on the basis of land owned by the farmers. However, if the FBR 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.
There is difference between collections of tax on income basis as compared to the land basis formula. For example, the levy of provincial income tax is the same for orchard producing fruit once in a year and the other orchard producing seasonal fruits many times 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.
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% of GDP in 2003-2004. This low share indicates that effectively the entire value-added chain in the agriculture sector is nearly tax-exempt.
Another tax official opined that the case for agricultural income tax follows from low contributions of agriculture to government tax revenue. It is argued that although agriculture's share in national income exceeds 23 percent, revenue raised from the sector is negligible. With limited tax potential of many subsistence farmers, the land revenue system needs to be replaced by agricultural income tax for any significant increase in revenues from this sector.
It is further argued that since the discrimination against agriculture in the form of low prices has ended or diminished in recent years, there exists a large untaxed potential which can be tapped by taxing this sector. The progressive rate structure of agricultural income tax permits heavier taxation of those with sufficient ability to pay and exemptions for the poor.
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