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Time to tax farm incomes
By Nasir Jamal
May 30, 2011: THE call for
effectively taxing big farm incomes has gathered momentum in
the recent years as the country strives to close the
widening gap between its falling revenues and growing
expenditure.
The rapid shift of incomes to rural economy in the wake of
soaring global commodity prices during the last couple of
years has given fresh boost to demands for agricultural
income tax for increasing the country’s abysmally low
tax-to-GDP ratio of below 10 per cent.
“The best time for taxing people is when their incomes are
growing,” an official of the Federal Board of Revenue (FBR)
told Dawn on the condition of anonymity. “When people are
prospering and have cash in their wallets and bank accounts,
they tend not to resist the effort to tax them. The rising
levels of rural income offer an excellent opportunity for
the provinces to effectively implement agricultural income
tax to substantially increase their own financial resources
for development,” he said.
His view is corroborated by the fact that some big
landowners from south Punjab have dropped opposition to
agricultural income tax. Shah Mahmood Qureishi, for example,
had recently supported this tax.
Jehangir Tareen has been pushing for tax on incomes of
growers for some years now. Both represent big landed
families from south Punjab, where landholdings still remain
substantially large unlike fragmented landholdings in the
rest of the province.
“It is no longer an urban demand. Even big landowners are
favouring tax on agricultural income,” the FBR official
pointed out. “It will not be easy for the opponents of
agricultural income tax in the assemblies to oppose its
effective implementation,” he said.
Both Punjab and Sindh have implemented agricultural income
tax for several years now. The total collection of this tax
from the two provinces, however, remains less than Rs1
billion, far below its potential.
“The agricultural tax, in its current form, is an
inefficient and inequitable levy. A flat rate per acre
(based on produce index which is not updated in years) is
charged from all growers who are not required to file tax
returns. It also does not make any distinction between a
small zamindar and a big landholder,” said a Punjab finance
department official. “If revenue from this tax is to be
enhanced effectively, it must be implemented on the income
of growers and not on land,” he said.
Provincial authorities often blame lack of capacity as a
major hurdle in the way of reforming agricultural income
tax, saying its implementation required a lot of hard work
and improvement in provincial tax administration. Others say
the provinces could request the FBR to collect agricultural
income tax on their behalf on the pattern of provincial
sales tax.
“The FBR has the capacity, resources and expertise to
collect this tax on behalf of the provinces. Meanwhile, the
provinces could build their capacity by revamping their tax
collection systems,” the finance department official said.
Finance Minister Hafeez Shaikh also told a pre-budget
seminar in Lahore that if authorised by the provinces, the
federal government could collect agriculture income tax on
their behalf and return it to them. The other way for the
federal government (to implement and collect this tax) was
that the parliament amended the constitution to make
agriculture income tax a federal subject, he said.
The “structural shift of incomes towards
untaxed sectors” falling in provincial domain is worrying
the country’s top finance managers because it is squeezing
the federal government’s ability to increase tax-to-GDP
ratio and broaden the base. State Bank of Pakistan Governor
Shahid Kardar feels that quick steps are needed to broaden
the tax base to benefit from the growth in the untaxed
sectors.
With this shift of incomes away from the tax-paying sectors
to non-tax paying sectors, the tax-to-GDP ratio is
structurally destined to be hovering around lower levels,
according to him. “The structural shift now needs to be
addressed in the next budget. All sectors of the economy
need to be taxpayers beyond a certain level of income
irrespective of the source of income.”
The provinces have so far shown little inclination towards
reforming the agricultural income tax. Sindh’s adviser on
finance Kaiser Bengali, however, said that the province was
working on a plan to raise revenues from this tax in the
next budget. “I can report that Sindh is working on a plan
to bring about certain changes in the tax to enhance revenue
collection from it in view of rising levels of (rural)
incomes on the back of escalation in commodity prices,” he
said.
Punjab, nevertheless, does not appear in a mood to even make
slightest change in the existing tax. “The matter is being
considered by a committee, the chief minister has
constituted, to find additional resources for income to make
up for the loss due to rejection of American aid,” the
finance department official said, adding that he did not
expect the committee to come up with recommendations to make
agriculture income tax an efficient and revenue generating
levy.
Courtesy: The DAWN |
Pakissan.com;
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