The Food and Agriculture Ministry (Minfal) has initiated a study to look into the prospects of taxing farm incomes to open a new window of revenue to help the new government in overcoming the economic challenges.
"The ministry has taken up the study on taxing agriculture incomes, an issue that hitherto has strongly been opposed by powerful feudal lobby that remained in and outside the previous governments," sources told Business Recorder on Sunday.
The study is being launched by the Agriculture Policy Institute (API), previously known as 'Agriculture Prices Commission' (APC). The ministry has given this special task to API without explaining whether API has been tasked after the new government directed the agriculture ministry to do so, sources said.
They said that there was likelihood that the study would be finalised before the next year's budget and the government could impose agriculture income tax in it.
But, according to some analysts, taxing agriculture incomes could not be done by the central government because this is a purely provincial subject. Under the constitution, the central government cannot directly impose any tax on agriculture sector.
The previous government failed to tax farm incomes despite the fact that top leadership looked committed to do so.
The Central Board of Revenue, which is now called Federal Board of Revenue (FBR), had given detailed briefing to President Musharraf with the advice that agriculture income tax should be made a federal subject, as the provinces had failed to deliver.
The FBR had also pointed that collection by provinces from agriculture sector (mostly through indirect taxes) remained stagnant at around Rs 2 billion a year, while agriculture contributes over 22 percent of the gross domestic product (GDP). The FBR reckoned that the first priority for widening the tax net should go to improving agricultural income tax (AIT) collection. The job should be entrusted to the CBR, either by making AIT a federal subject or the CBR should be allowed to collect the tax on behalf of the provinces.
In its presentation, the FBR said that, if empowered, it could initially collect Rs60-70 billion from the farmers. Over time, the figure would go up, according to sources.
They said that AIT has been on the table for the past several years as the previous government wanted to tax the services sector, real estate and stock market. The Planning Commission, according to sources, is also one of the strong supporters of taxing agriculture income.