In the aftermath of the announcement by the Advisor to the Prime Minister on Finance, Shaukat Tarin, that Pakistan has formally requested assistance from the International Monetary Fund (IMF) there is intense speculation as to what fiscal measures would be announced in the near future to enable the government to meet its target of tax to Gross Domestic Product ratio of 15 percent as opposed to the existing 5 percent.
It is irrelevant as to whether this target was indigenously proposed, as maintained by Tarin, or whether the IMF imposed it, as maintained by government detractors. The fact remains that the objective of meeting this target would remain the same: the need to enhance tax revenue considerably.
Tarin in his recent press conferences has invariably maintained that the government is considering imposing a tax on all the holy cows of this country; and perhaps there is none holier than taxing agricultural income. He has even gone on record stating that the government is likely to impose a tax on farm income. However, in a television interview the Minister of State for Finance, Hina Rabbani Khar, opposed any such move.
This is unfortunate as it reveals that the government and most regrettably its economic team are not on the same book, leave alone the same page, with respect to imposing a tax on agricultural income. It would have been more appropriate had a consensus been developed within the government in an effort to forestall such conflicting statements that achieve little but to spread confusion.
Khar presented the same old hackneyed arguments against taxing the income of farmers. She implied that the farm sector must be protected because (i) Pakistan's exports can be mainly sourced to the farm sector either directly as in the case of rice exports or indirectly as in the case of textile exports; (ii) Pakistan provides the lowest subsidies to the farm sector in comparison to other regional countries; (iii) agriculture provides the largest source of employment in the country and a tax would compromise the existing jobs in the farm sector; (iv) a vast number of poor farmers are largely illiterate and would be unable to maintain books - a factor that would fuel corruption though the Minister of State should need no reminding that corruption is also attendant in other schemes of taxation; and (v) the Constitution bars the federal government from levying a tax on agriculture income.
That Khar's arguments are flawed is fairly evident. Taxing the income of farmers does not imply an across the board tax but, like in the instance of income tax from other sources including industry and salaries, income above certain levels will be taxed. In case of farm losses, and there is ample evidence to suggest that farm income fluctuates widely in this country as output is largely dependent on external factors like weather conditions, the tax payable will have to be adjusted.
In times of profits, too, the tax payable will have to be adjusted. The purpose of this exercise would be to bring the farm income within the universal phenomenon of taxing income above a certain level. That would not only be fair but would also meet the need of the hour given the severe shortage of tax revenue that has forced our government in recent months to seek foreign assistance from pillar to post.
In addition, since the constitution of the country clearly bars the federal government from taxing agricultural income, this has been taken to imply that the subject is within the provincial purview. In this context, it is relevant to note that there is, at present, a tax on the farm sector imposed by the provincial governments, however it is not a tax on income but on the size of land held by any individual. Putting land in the name of one's family members or dependents is an easy way out of paying this tax. It is no wonder then that collections under this head are abysmally small.
It is indeed, unfortunate that Khar's comments on national television compromised the Advisor to the Prime Minister on Finance's basic policy thrust which, at the present juncture in our economic history, must be fully supported. Khar must remember that as an elected member of parliament she bears the bigger burden relative to Tarin of ensuring that revenue generation must be from those with ability to pay rather than the poor who, in all probability, enabled her to win her seat in parliament.