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Farm income tax to be a federal subject!




  • THE Central Board of Revenue has advised President General Pervez Musharraf that agriculture income tax should be made a federal subject as the provinces have failed to deliver, with annual collection stagnant around Rs2 billion from a sector which contributes over 22 per cent of the gross domestic product(GDP). The landed gentry virtually gets away without paying any income tax.

    The CBR reckons 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.

    A presentation on the latest CBR strategy was made to President Pervez Musharraf when he visited the CBR House on February 22. The objective is to increase the tax-to –GDP from the present 10.5 per cent to about 15.5 per cent in the next 10 years.

    Insiders maintain that the president agreed to let the CBR to prepare a blueprint for effective recovery of agricultural income tax. The president is also believed to have agreed to support a legislation to make the AIT as federal subject. However, the assemblies are dominated by big farmers who are expected to resist the move.

    If empowered , the CBR reckons that it could initially collect Rs60-70 billion from the farmers.

    Over time, the figure would .go up.

    The government has decided in principle to recover tax from agriculture and the issue is expected to be finalised during the next financial year. It will be followed by tax on services, real estate and stock market.

    The share of CBR in taxes in terms of tax-to-GDP ratio is 9.5 per cent while one per cent is that of provinces. However, both are considered low by tax officials and international donor agencies.

    CBR Chairman Abdullah Yousuf has convinced the president that unless all segments of society paid their due taxes, the country could not progress and that time had come for the government to take a “political decision” and enforce levy of taxes on agriculture income which was consistently being avoided by the landlords.

    Meanwhile, the CBR chairman requested the president to let his organisation first prepare a blueprint for recovery of tax on agriculture income effectively. The president agreed to enact a legislation to make agriculture — currently a provincial subject-— a federal discipline.

    However, the president’s “go-ahead signal” to the CBR chairman for recovering tax on agriculture income has not been well perceived by over 80 per cent of the legislators sitting in the national and provincial assemblies.

    Both the MNAs and the MPAs of the ruling and opposition parties were believed to have reacted sharply to the proposal. Some of them also met PML President Chaudhry Shujaat Hussain and informed him about their concern over the government’s tentative decision.

    The late Dr Mahboob ul Haq used to say that landlords earned over Rs600 billion annually but did not pay even Rs1 billion tax on their agriculture income.

    Deputy chairman of the Planning Commission Dr Akram Sheikh is also a supporter of tax on agriculture income. He said that everybody should pay tax on his/her income and that the state must recover it.

    The CBR Chairman, when approached, confirmed that for the first time in Pakistan’s 60-year history there was a realisation at the top level that agriculture income should be taxed effectively.

    “We have told the president that in the first place agriculture income should be made a federal subject. And if it is not possible at this stage, then the CBR should be allowed to collect this tax on behalf of the provincial governments,” Mr Yousuf said.

    He was of the view that initially the government could collect Rs60-70 billion tax on agriculture income which could gradually be increased. “Although this Rs60-70 billion is still not enough, it is modest,” he said.

    Currently, he regretted, less than Rs2 billion was collected through tax on agriculture income which needed to be increased. He said the agriculture sector accounted for 22 per cent of the GDP, but taxes coming from this sector were very marginal. “There is a need to have certain equitable and fair across-the-board tax dispensation in which all sectors must pay their due taxes”.

    Similarly, he said, the high-level meeting agreed to impose capital gains tax on property and recover adequate tax from the stock market. Property, he said, was also a provincial subject which needed to be made a federal concern. Then the services sector, he said, must pay their taxes for GST purposes.

    Former director of the Pakistan Institute of Development Economics (PIDE) Dr A. R. Kamal also supported tax on agriculture income and said the government should introduce a piece of legislation, declaring it a federal subject. The major problem, he said, was in Punjab and Sindh where agriculturists did not want to pay their due taxes on their incomes.

    TA substantial amount of revenue from tax on agriculture income, Dr Kamal said, could be collected from Punjab and Sindh for which the government should fulfil its responsibilities. He termed the February 22 meeting a “good beginning” in this direction and said if tentative decisions were converted into hard decisions, the government could collect sufficient resources to generate income and reduce poverty.

    Courtesy: The DAWN

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