The Central Board of Revenue (CBR) has been urged to bring agriculture income into tax net. Sources told Business Recorder on Wednesday that the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) received the suggestion from business community to incorporate in the apex trade body's budget proposals 2007-08.
The suggestion mentioned that the Income Tax Ordinance 2001 has not been able to remove this obstacle of bringing agriculture income into tax net. "It is an admitted fact that agriculture is by far the largest sector of the national economy, with a share of a quarter of the gross domestic product (GDP). Farm Income Tax has failed to contribute to the annual nominal tax targets of Rs 10 billion set for the last fiscal year."
The business community pointed out that it was a major hurdle in widening the tax net and in ensuring equity. Trade, industry and salaried classes other than agriculture shared almost the entire income tax collection, they said.
They recommended that in to improve tax-to-GDP ratio agriculture income should be taxed in the Tax Year 2007. The CBR in its FY 2006-07 half-yearly report disclosed that the contribution of agriculture sector in GDP is over 21 percent and its contribution of to tax is only 1.1 percent, sources indicated.
"An international experience to this effect confirms that agriculture sector has never been a major source of tax revenue due to its peculiar nature. However, the income emanating from this source, howsoever small it may be, is never kept outside the tax net.
Pakistan and a few other countries are exception. Resultantly, a major loophole has been created in the taxation system," the report said. The great mismatch in the collection of tax from agriculture sector was due to wide-ranging tax-exemptions granted to the agriculture sector, narrow tax base, low compliance and enforcement, and constitutional constraints whereby taxation of agriculture income is a provincial subject.
So far only two provinces have opted to have tax on agriculture income, but even in these provinces, the collection is abysmally low, which speaks volumes about the level of compliance within the agriculture sector, CBR half-yearly report said.