Archive for November 1st, 2010

Agricultural income tax

Post Source: Dawn Editorial – Saturday, 30 Oct, 2010



It may be called the Reform Committee Group — a group of experts brought together at the federal level to address Pakistan’s woeful tax-to-GDP ratio — but it appears reform isn’t even on its agenda.

According to a report in this newspaper yesterday, the RCG’s mandate has been limited to plugging loopholes in the existing tax structure, leaving the issue of a tax on agricultural income off the table altogether. Once again, the powerful landed lobby has prevailed in the corridors of power. Landowners put forward all manner of excuses for why they should be kept out of the income-tax net, arguing that they are already indirectly taxed, poor farmers will not be able to bear the burden, etc. But those are weak excuses. Just like salaried and self-employed individuals in urban areas are exempt from paying income tax below a certain threshold income, the same should be done to accommodate poor farmers.

It is far more revealing to debate the facts agriculturalists and big landowners tend to avoid mentioning. Agriculture accounts for nearly a quarter of Pakistan’s GDP, but only one per cent of its tax revenues. Farmers enjoy all manner of subsidised inputs — paid for by other taxpayers — from fertiliser to seeds to electricity. They can avail themselves of low-interest loans and enjoy guaranteed prices on their products in the form of support prices. In truth, hundreds of billions of rupees are transferred from the urban to the rural sector each year — much of it ending up in the pockets of big and powerful landowners.

Anecdotal evidence alone demonstrates the capacity for the agricultural sector to pay income tax. Around the time lucrative cash crops are harvested each season, the demand for motor vehicles spikes, with Corollas and Civics disappearing from showrooms across the country. In the cities and towns of Punjab and in Karachi, multi-million rupee homes are maintained throughout the year, the ‘poor’ owners only turning up for a few weeks of rest and recreation. The regressive and skewed tax system in this country is unjust, immoral and must be changed. Agricultural income must be brought properly within the tax net.