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Agriculture Income Tax – “The Reality”




  • Whenever, Pakistan’s economy is under pressure, instead of reducing its expenses or deferring non-productive projects, the government has always adopted easy and coercive measures such as the levy of further taxes including the issue of tax on agriculture income. The question is, why our economists and policy makers are determined and bent upon to destroy the agriculture sector of Pakistan which is presently the only productive sector of Pakistan?

     

     

    Whenever, Pakistan’s economy is under pressure, instead of reducing its expenses or deferring non-productive projects, the government has always adopted easy and coercive measures such as the levy of further taxes including the issue of tax on agriculture income. The question is, why our economists and policy makers are determined and bent upon to destroy the agriculture sector of Pakistan which is presently the only productive sector of Pakistan? We acknowledge their concern about reviving the economy of Pakistan but the actual policy makers being predominantly bureaucrats and others not elected by the people of Pakistan do not understand the problems of the farmers living in rural areas under extremely hard conditions facing issues of survival and sustainability.

    In developed countries to which our benefactors like World Bank, IMF belong 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 in Pakistan claim that despite the fact that contribution of agriculture sector in the national income is around 25 %yet there is very nominal contribution from this sector in the revenue resource generation of the country. I.e. they do not pay income 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, and through Income Tax Ordinance 1997, subsequently amended through Income Tax Ordinance 2001. The difference being that the earlier in 1997 the tax on agriculture was based on land holding therefore was a land based tax while in 2001 the tax was redefined by adding the “word” agriculture income with a stipulation to pay the amount of tax on income which ever was higher, thereby qualifying as the income tax on agriculture.

    To summarize, let’s discuss regarding the question, whether agriculture income tax is implementable like income tax on other sectors. All policy makers of the world agree that collection of tax on small business, services and agriculture is very difficult while agriculture tax is even more cumbersome and difficult to collect.

    According to an Indian writer researcher, agriculture tax in under developed countries is very difficult because most of the transactions of income & expenses are without receipts. On the other hand, agriculture tax has very nominal importance in developed countries rather it is almost nil in OECD countries, as is in under developed countries like Pakistan & India where its contribution in GDP of the country is 24% & 15% respectively. A figure often discussed & quoted in media and the economic policies.

    It is very easy to say that like other sectors, income from agriculture should also be taxed but firstly it is already taxed and secondly its assessment and collection is very difficult and impracticable because of many reasons e.g.

    (a) It’s not possible to calculate agriculture income and tax on the income as compared with other sectors.

    (b) The performance of Income Tax department is already unsatisfactory in already taxed sectors where they collect around 63% of the tax collected as advance tax.

    (c) It would not be possible to calculate the agri income under the present system of tax assessment system.

    (d) Income from agriculture is already taxed and collected by provinces in two modes as under

    1. Payment of Tax on the basis of ownership of Land.(fixed)

    2. Payment of Tax on the basis of income from agriculture.

    (i)            Agriculture Land Ownership in Pakistan

    (As per Agriculture Statistics 2000) 

    Land Ownership 

    Less than 5 acre (%) 

    5 to 25 acres (%) 

    25 to 50 acres (%) 

    50 acres and plus (%) 

    Pakistan 

    61.00 

    33.00 

    4.00 

    2.00 

    Punjab 

    61.34 

    34.00 

    3.40 

    1.40 

    Sindh 

    42.50 

    46.00 

    7.70 

    4.10 

    KP 

    79.00 

    18.00 

    1.70 

    1.16

    Balochistan

    30.00

    52.00

    10.70

    8.00

    (Chart 1)

    In the above mentioned chart of year 2000, the land ownerships ratio is evident. Those critics and advocates who are still under the illusion that there are still large number of big land lords or feudals in Pakistan must know that there are only 2% farmers in Pakistan who are the owners of 50 acres or more. If we see provinces details, the owners of above 50 Acres and above were only 1.40% in Punjab , 8% in Balochistan, 4.1% in Sindh and 1.16% in Khyber Pakhtunkhwa as per 2000 data (see chart 1) Subsequently since 2000 i.e. as per the figures of 2007(chart 2), because of inheritance, division of land, economical needs, conversion of agriculture land into residential colonies and many other reasons, the percentage of large ownership has reduced a lot and as per statistics of Punjab 2007 as shown in the chart (2) has reduced to only 0.05%.

    Agriculture Land Ownership in Punjab

    (As per Statistics Punjab 2007)

    Land Ownership

    Less than 5 acre (%)

    5 to 12.5 acres (%)

    12.5 to 25 acres (%)

    25 to 50 acres (%)

    50 acres and plus (%)

    Punjab

    90.73

    7.40

    1.20

    0.28

    0.05

    (Chart 2)

    Furthermore there has been more fragmentation since 2007 in agri land holding in the province of Punjab and the percentage of farmers above 50 acres land holding has dropped even lower Agriculture sector also pays tax

    No doubt every sector in Pakistan should pay tax but it is strange that it is being wrongly propogated as disinformation that agriculture sector is not paying tax. For the information of all concerned policy makers IMF / World Bank and media business Agriculture Tax Act was enacted in 1997 and then amended in 2001 and is imposed and implemented as below.

    Agriculture tax on the basis of land ownership Chart “3” (incidence of tax) – no exemption)

    Agriculture tax on the basis of income from agriculture see chart “4”

    Moreover besides on tax land holding basis, shall be implemented on this basis of tax incidence which is higher whether, on land ownership basis or agriculture income based, for example, according to Agriculture Tax Act 1997, farmers used to pay tax as below.

    Chart “3”

    1

    12.5 acres land ownership

    No Tax

    2

    12.5 acres to 25 acres

    Rs.100 per acre

    3

    26 acres to 50 acres

    Rs.250 per acre

    4

    50 acres or more

    Rs.300 per acre

    As already mentioned above by an amendment in 2001 the farmer with land holding of 50 acres or more of irrigated land and 100 acres of Barani land would be required to submit a return of agriculture income on a prescribed Performa and has to pay tax, on land ownership basis and on income from agriculture whichever is higher.

    Now let us take the example of second scenario i.e. suppose, agriculture income of a farmer on 30th June 2010 is Rs.10,00,000/= and all his agriculture expenses including depreciation of agriculture machinery are Rs.350,000/=, so his tax return form for the year shall be as following.

    Chart “4”

    Total Agriculture Income of the year

    Rs.10,00,000

    Cultivation Expenses

    Rs.700,000

    Balance Income

    Rs.300,000

    Basic Exemption from Tax

    Rs.80,000

    Taxable Income of the Year

    Rs.220,000

    Payable Tax

    Rs.14,500

    In the scenario of fixed tax on land based tax will be to 50 x 250= 12500 while on income based it will be 14,500 which being higher will have to be paid as mentioned above Fixed land based tax per acre on less than 50 acres has only to be paid. Based on revenue department calculations the tax on the income from agriculture is calculated by the farmers on a return form specified as per calculation explained in Chart “5” below.

    Tax Slabs for Income Tax Based on Income From Agriculture

    Chart “5”

    1

    If total income does not exceed Rs.100,000/=

    5% – 5,000

    2

    If total income is more than Rs.100,000 but does not exceed Rs.200,000/=

    Rs.5,000 + 7.5% on over Rs.100,000/=

    3

    If total income is more than Rs.200,000 but does not exceed Rs.300,000/=

    Rs.12,500 + 10% on over Rs.200,000/=

    4

    If total income is more than Rs.300,000/=

    Rs.22,500 + 15% on over Rs.300,000/=

    As is evident in chart (4) there is a basic exemption of Rs.80,000 only for agriculture income tax which is Rs.300,000/= for other sectors, so far which is inequitable and a serious anomaly.

    The above mentioned exercise will clearly explain that agriculture tax is already imposed and is being recovered. Moreover withholding tax is not deductable from agriculture income tax while the farmer also has to pay abyana, sugarcane cess, cotton cess besides other numerous indirect taxes, where government collects around 80 billion a land revenue receipts. Besides now with the imposition of 17.5% RGST on agriculture inputs and machinery which factually translates to more than 25% increasing per acre input cost of the farmer by 4000-5000 Rupees.

    For the reader’s information, the government of Punjab has been collecting from 770 million Rupees to 1.5 billion rupees annually since its imposition in 1997.

    Our parliamentarians should also guide people and Media and refrain from statements about this subject merely for temporary political gains. However, it is very important to create awareness in the farmers about tax system and ensure properly documented and transparent collection system so that collected tax should be deposited also in the government account. Other provinces should also make concerted and effective efforts to collect agriculture income tax like being done in Punjab. Moreover, lack of awareness in the farmers regarding payment of tax is also a reason of lesser collection, where Patwari collects tax on a plain paper (Parchi) and no proper receipt is issued to farmers which is not recorded properly in revenue department as well as credited to the farmer’s account, therefore, the claim that farmers do not pay tax is not valid.

    If government is serious in tax collection from Agriculture Sector it will have to be more proactive, launch a media campaign to create awareness in the farmers and should so desire the Farmer’s Organization like FAP can be approached to assist them in this regard who can suggest & assist in transparent, assured and corruption free regime for agriculture income tax.

    By: Dr. Mohammad Tariq Bucha

    President Malik Khuda Bukhsh Bucha Agriculture Foundation and Director & Chief Coordinator Farmers Associates Pakistan (FAP)


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