Agriculture Income Tax, a misnomer


Whenever, Pakistan’s economy is under pressure, instead of reducing its expenses or deferring non-productive projects, the government always adopts easy and coercive measures such as, levying GST and raising the issue of agriculture tax imposition on farmers. The question is; are our economists incompetent who want to destroy the agriculture sector of Pakistan or is all this being done intentionally? We have no doubt about their sincerity with Pakistan, but they being bureaucrats, not elected by the people of Pakistan, do not understand the problems of an ordinary Pakistani particularly, farmers living in rural areas under extremely hard conditions with issues of survival and sustainability.
In developed countries, agriculture tax is not considered a reliable source of revenue generation. There are no confirmed figures about revenue generation from agriculture income, though its advocates claim that contribution of agriculture is almost 22 per cent in the national income, but there is no contribution in revenue generation of the country. Moreover, 53 per cent of current agriculture income from livestock and forestry is totally exempt from tax. On the other hand, the people who oppose the agriculture income tax say that they are already paying agriculture tax by government control on agri prices. Moreover, agriculture is already taxed through Income Tax Ordinance 1997 and subsequently, by an amendment through Income Tax Ordinance 2001. The difference being that earlier in 1997, the tax on agriculture was based on land holding therefore, it was a land based tax (a capacity tax); while in 2001, the tax was redefined by adding the word agriculture income with a stipulation to pay that amount of tax which was higher.
To summarise the issue, let’s first of discuss if agriculture tax can be implemented or not? All policy makers agree that collection of tax on small business, services and agriculture is very difficult, while agriculture tax is most cumbersome and difficult to collect.
The experts of agriculture tax in Pakistan cite India as example for agriculture tax. According to an Indian writer/researcher, agriculture tax in under developed countries is very difficult because most of the transactions of income and expenses are without receipts. On the other hand, agriculture tax has a nominal importance in developed countries rather agri tax is almost nil in OECD countries, but in under developed countries like Pakistan and India, its contribution in GDP of the country is 22 per and 15 per cent respectively.
It is easy to say that like other sectors, agriculture should also be taxed, but its implementation is very difficult and impracticable because it’s not possible to calculate agriculture income and tax. The performance of income tax department is already not satisfactory in other sectors, as it collects 63 per cent tax through advance tax regime, so it would be close to impossible to calculate the agri income under the present system of tax assessment.
At the moment there are two different ways are in practice to calculate agriculture incomes:
1. Payment of tax on the basis of ownership of land.
2. Payment of tax on the basis of income from agriculture.
In the provinces, the agri tax is at present generally recovered/collected on land ownership basis. Due to economic constraints, our economists also prefer to levy agri tax on land ownership basis.
Another objection which is raised on agriculture sector is that for the purpose of agri tax calculation, based on ownership/land holding, this sector pays less tax as compared to salaried persons who pay a major share of their income as tax. Big land lords also pay nominal tax out of the income earned from agriculture. This economic disparity is also highlighted by other sectors that emphasise upon the necessity of collecting tax for agriculture sector. In Pakistan, tax share in our national revenue is only 9 per cent, which is less than other countries, even compared with neighboring countries like, India and Bangladesh. If Pakistan wants to increase its tax revenue up to 14 per cent, GST and income tax have to be expanded and made more practical because all of this will never be possible by levying agriculture tax only. Irrespective of the facts mentioned above, if provinces are serious to implement agriculture tax, they will have to maintain the land record up to date which includes, Malkiyat, Girdawarie, Jama bandi and also keep track of the change in ownership.
However, one important factor should also be kept in mind, that before implementing agriculture income tax, constitutional amendment is also required which will empower the federal government to implement and collect it. But before doing this, the following factors should also be taken into consideration:
In the above mentioned chart, you should carefully notice the land ownership ratio. Those people, who are still under the illusion that there still are big land lords in Pakistan, must understand that there are only 2 per cent agriculturists who are owners of 50 acres or more. If we see details of the provinces, the owners of 50 acres and above in Punjab were only 1.40 per cent, 8 per cent in Balochistan, 4.10 per cent in Sindh and 1.16 per cent in Khyber Pakhtunkhwa.
If we see the figures of year 2007 in the above chart, because of inheritance division of land, economical needs, conversion of agriculture land into residential colonies and many other reasons, the percentage of ownership has reduced further and the owners of land above 50 acres in Punjab are now only 0.05 per cent.
Now in 2011 as compared with the figures of year 2007, there has been further fragmentation in agri land holdings in the province of Punjab i.e. reduced to only 5660 in number.
Agriculture sector also pays tax: No doubt, every sector in Pakistan should pay tax, but one fails to understand why it is being prorogated that agriculture sector is not paying tax. Factually speaking, Agriculture Tax Act was implemented in 1997 and then amended and implemented in 2001 as highlighted below:
1. Agriculture tax on the basis of land ownership.
2. Agriculture tax on the basis income from agriculture.
Moreover, tax is levied and implemented on the above mentioned basis of tax incidence, whichever is higher, whether on land ownership basis or agriculture income based, for example, according to Agriculture Tax Act 1997, farmers used to pay tax. This can be seen in the chart below.
Through an amendment in 2001, now a farmer who owns 50 acres of irrigated land or 100 acres of barani land would be required to submit a return of agriculture income and has to pay maximum tax, from either land ownership basis or agriculture income basis. No farmer is exempt from it.
Now take the example of seemed scenario i.e. suppose, agriculture income of a farmer on 30th June 2011 is Rs500,000 and his all agriculture expenses including, depreciation of agriculture machinery of Rs350,000l; his tax return form for the year shall be the following:
As mentioned above, fixed land based tax per acre on less than 50 acres has to be paid. Based on revenue department calculations, tax on the income per agriculture is calculated by the farmers as per the return specified.
Our parliamentarians should not misguide people and media for their temporary political gains. It is important to create awareness among the farmers about tax system and ensure a properly documented and transparent collection system so that collected tax should be deposited in the government accounts. Farmers should be guided and facilitated in this regard. Other provinces should also make concrete and effective efforts to collect agriculture tax so that people can know about the procedure of payment of tax by the agriculture sector. Since in current system, a ‘patwari’ collects tax and does not issue a proper receipt to the farmers, which is why the tax does not properly gets recorded and neither is the amount credited from the farmers’ accounts.
If government is serious about collecting tax from the agriculture sector, it will have to be more proactive. It is pertinent to launch a media campaign to create awareness among the farmers. The farmers’ organisations can also be approached to assist them in this regard, with positive contribution to the national exchequer.

Mohammad Tariq Bucha and Malik Khuda Bukhsh Bucha are currently working as President Farmers Associates Pakistan (FAP) and President Agriculture Foundation, respectively.

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