Call for exempting small, marginal farmers, developing simple system for taxation

LAHORE: If agriculture income is to be taxed to increase tax to GDP ratio, then the government should exempt small and marginal farmers (under 12.5 irrigated acres and twice that un-irrigated) or farmer households earning less than PKR 800,000 per annum. Besides, there is a need to develop a simple system for evaluating the income of the comparatively large farmers for taxation.

Farmers, both small and large pay both "Indirect" as well as "Direct Taxes". All the inputs used like diesel, energy, pesticides, fertilizers, and most importantly seeds (example of maize seeds) are taxed. Farmers also pay direct taxes ranging from water to land tax, said Agriculture Republic co-founder Aamer Hayat Bhandara while talking to Business Recorder here on Saturday.

He was of the view that agriculture is already dying as a sector. Youth are migrating from rural to urban areas leading to a reduction in number of farmers. This in turn is decreasing the amount of land actively being farmed. At the same time, the size of farms is becoming smaller and smaller due to fracturing of family-owned farms. The result is both lower productivity per acre and total production. However, Bhandara said there are three distinct challenges being faced by the country; the low tax to GDP ratio for which agricultural income tax is a proposed remedy; food security challenges due to which the country has become a net importer and which will not be addressed by agriculture income tax; and agriculture is not fully integrated with the services sector and industry leading to lower revenues. I.e. the other two sectors are not playing their full-part by increasing the yield and productivity of the agriculture sector.

He proposed to ensure higher agriculture income tax and improving food security, tax breaks should be created for agri-processors, which make immediate payments to farmers for produce purchased. Ensure tax breaks to the processors, who enter into long-term purchase contracts with farmers at a price above prevailing market rates. Provide time-bound tax breaks to local and international investors proposing to form new corporate farming enterprises or farmers cooperatives for supplying the local markets, and tax the export oriented corporate farms. Bring the middlemen (arthis) in Mandis into the agriculture income tax net. They are considered traders, and taxed accordingly. They are also a major hindrance in development of an efficient farm to fork chain, he claimed.

Aamer Bhandara further proposed imposing a higher taxation rate on Arthis working in markets with inadequate infrastructure (cold storages, parking, warehousing, facilities etc) and/or opaque transactions. Penalizing arthis/mandis carrying out undocumented and/or cash transactions and increasing tax rate by 5%, if the margin between the purchase price from farmers and wholesale sale price is greater than 20%, were his other proposals.

He also called for spending the agriculture income taxes collected in a district within the same district. This amount can be utilized for setting up cold storages in horticulture producing areas, or grain silos in grains areas; or milk processing units in dairy hub; or off-grid energy initiatives and communications infrastructure etc.

Announce tax breaks for farmers, enterprises and academia investing in increasing yields and improving productivity. The resulting research will increase revenues of farmers and eliminate the food security challenge being faced by the country. Tax the low-density housing societies established on prime agricultural land near towns. This forces farmers to go out to try and bring unproductive land under cultivation at a high cost. The rising costs of operations result in the consumer in the cities being forced to pay more.

He said the land record system is broken, as is the research & extension system. Provide tax breaks to knowledge-based startup companies working to make the agriculture transactions more cost efficient and cost effective; increasing agricultural productivity; and enhancing incomes.

Copyright Business Recorder, 2021