Farm tax : a must for the provinces

Sultan Ahmed

http://www.dawn.com/2007/05/21/ebr17.htm

Two major proposals have remained before successive governments for over 30 years now. They are: levying of proper income tax on the large farm incomes and the crop insurance.The earlier governments would have liked both the moves going together with crop insurance linked to the income tax levy But the farm lords have been hardly interested in the crop insurance. Besides, the insurance companies were not at right stage of the development to extend their operation to the rural areas. The farm lords also have been averse to the levy of proper income tax on their big incomes.The crop insurance can could increase real income of the farmers in case of destruction or damage to their crops. Now, come of the farmers are having a second thought about crop insurance. At the same time, they want to avoid paying income tax in spite of their increasing incomes. In fact, crop prices have risen, procurement prices increased, loan sanctions and subsidies on fertilisers expanded along with the irrigation facilities and subsidised electric supply.The major international lending agencies like the World Bank and the Asian Development Bank have been pressing the government for increasing income tax revenue from farm incomes to boost revenues for financing development and social sector progress. While they lend more and more money for development, they also want the government to mobilise more of its own revenues through taxation which has now at a very low tax- to -GDP ratio of 10.5 per cent.The lenders have also advised successive governments to opt for land reforms. The earlier two land reforms were seen as more cosmetic than a real solution to the problem. And soon after Mir Zafarullah Jamali became the first prime minister under president Musharraf, he formally announced that the age of land reforms was over and now was the time to help the farmers to maximise their output.With the feudal lords and the ladies dominating the assemblies, there is no question of land reforms coming..So far it has been a one-way street in the relations between the government and the farm lords. They want enhancement of the support and procurement prices from time to time along with large farm credit at reduced rates of interest, writing off of their defaulted loans for farm machinery and higher subsidies for fertilisers in a period of rising prices, along with enough water and subsidised power for the tube wells. In return, they pay a nominal provincial income tax which yields altogether Rs2 billion, more than half of which comes from the Punjab.The next Annual Development plan outlay is to be raised to Rs500 billion from over Rs400 billion and five major dams including Kalabagh Dam and the Bhasha Dam are to be financed. Far more funds are needed now to increase its share of the development funds and raise that not through borrowings but through taxes. And the farm income tax is the right source of revenue for that now.The Central Board of Revenue has been showing keen interest in using its hands for raising revenue from the farm land. And the CBR chairman Abdullah Yusuf has offered his services for collecting the provincial agricultural income tax.Initially, the revenue from farm income tax may not be much and Mr Abdullah Yusuf himself wants a modest beginning. The large family farms are split between the members of the feudal families and each will show a number of workers on their payrolls which will reduce the tax payable by them.An earlier estimate said the first year of the farm income tax may not yield more than Rs5 billion but it will go on increasing rapidly. Anyway he wants to achieve a total tax-GDP ratio of 15.5 per cent in the next 10 years. The farm income tax can be an essential ingredient of that substantial rise in tax revenuesNow as the economic growth rises and the prospects of a seven per cent cotninued growth becomes real and the GDP is much larger, the tax collection should increase correspondingly. More tax revenue is needed for sustaining a higher rate of investment. The farm income tax is one of the major means to achieve that as agriculture has a 22 per cent share of the GDP. The idea of crop insurance was first floated at the time of the Zulfiqar Ali Bhutto’s government in the 1970s, the insurance companies were then not too excited about that. They did not want to become captives of the feudal lords in the farm areas. The suggestion that they can choose some areas for experimental purposes did not find favour with them. The situation has not changed.As for the government, it would prefer both crop insurance and agricultural income tax to come together. But if crop insurance is slow to come, the farm income tax should come first.Agriculture with its 22 per cent share in the GDP cannot be such a low tax performer when even the common man has to pay 15 per cent sales tax for buying his essential requirements. The feudal lords have apart from their economic power, a tremendous political clout and enjoy the numerous advantages. They should pay not avoid paying income tax.We cannot depend too much on external loans or excessive domestic borrowings with the real beneficiaries of the economy not wanting to pay their tax dues fully. The fact is the feudal lords have failed even the co-operative system in the rural areas as they monopolised and abused it. It is a pity the small farmers cannot have their own cooperative societies because of the hegemony of the feudal lords.