Business

Centre to provinces: Project aid depends on increase in agriculture tax collection

Finance minister says hiding behind the constitution will not yield results.

Shahbaz Rana June 09, 2011

ISLAMABAD:

The federal government has informed the provinces that future flow of foreign aid for provincial development projects would largely depend on their ability to improve agriculture tax collection, as the four provinces are not in a mood to introduce major reforms in their upcoming budgets.

In a recently held meeting between the Centre and provinces to resolve the agriculture tax issue, Finance Minister Abdul Hafeez Shaikh told the provinces that this time hiding behind the constitution would not yield results, as international lenders have started questioning provincial revenue collection, a finance ministry official said.

He said the finance minister told the provincial representatives that their bid to win foreign loans for development projects would largely depend on their ability to reform tax regimes.

“When provinces are not doing enough to generate taxes, they should also not expect the federal government to remain aloof anymore,” the official quoted the finance minister as saying. Under the constitution, taxing agriculture income is a provincial subject.

The Punjab government is going to announce its budget today (Friday) and according to the finance ministry official no major decision on improving farm tax collection is expected. “So far, provinces are reluctant to do something,” he added.

The finance minister is said to have asked Punjab to take the lead and repeat the intention of doing something on the agriculture tax, said the official. The federal government proposed to give up the regime of fixing agriculture tax on the basis of structural rates and instead align tax rates in all provinces.

The official said Punjab representative Sardar Zulfiqar Khosa, Senior Adviser to Chief Minister, took the plea that in Punjab 85 to 90 per cent were small landholders, prompting the finance minister to comment that “big landlords should not use the name of small farmers for vested interests.” Punjab’s tax collection from agriculture income is around Rs500 million.

The Balochistan government informed the federal government that it would not be in a position to commit on agriculture tax reforms at this juncture. The only positive sign was shown by the Khyber-Pakhtunkhwa government which said it would be ready to introduce reforms, provided other provinces do the same.

The Sindh finance minister vowed to collect more taxes but shied away from giving any commitment on rationalisation of rates, the official added.

Published in The Express Tribune, June 10th, 2011.

COMMENTS (5)

Ali | 13 years ago | Reply I really do not understand what is so difficult.about taxing agricultaral income. it should be taxed at similar rates to those working in industry or services. I understand that a certain amount is tax free. Poor people are unaffected because they fall into this tax band. Everyone above a certain amount should be taxed at the going rate. Why should farmers with large holdings who earn enough to drive Toyota Land Cruisers pay no tax? I agree people who are earning just enough to make a living should be left alone to make the most of it but significant revenue is lost to these Nawabs and Sardars all over the country.

Sahir Sheikh | 13 years ago | Reply FBR should collect taxes on agriculture, the provincial governments' revenue boards are untrustworthy and inefficient with a total lack of effective tax codes and procedures.

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Meekal Ahmed | 13 years ago | Reply Rather than holding back foreign loans, just with-hold transfers and grants equivalent to revenue foregone.

Yusuf | 13 years ago | Reply In recent years our regional agricultural centers as well as small metropolitan cities under went positive demographic changes. Huge increase in individual income growth occured due to rise in agriculatural output including livestock. agricultural commodites price increased yearly to provide comfortable cushion for higher growth. Currently Pakistan regional city centers are at crest of their agricultural boom cycle and increasing daily with increase in food prices. Deteriorating urban living conditions, poor urban employment, inflationary pressures, increase urban poverty and political disturbances in major cities likely to add further population migration to rich agricultural regional centers like Hyderabad, Nawabshah, Khairpur, Mirpurkhas, Larkano, Dadu, Sukkur, Rahim Yar Khan, Bahawalpur, Multan, Vihari, Sahiwal. Faisalabad,Sargodha,Jhang,Kasur, Hattar, Wah Cantt, Lalamusa, Dera Ghazi Khan, Islamabad, Rawalpindi, Chakwal, Attock,Dera Ismail Khan, Gujrat, Gujranwala, Wazirabad, Shekhupura, Kamoke, Mianwali, Nowshera, Mardan,Peshawar, Charsadda, Bannu etc. Like osmosis population diffuse where large amount of money flows. Its not hard to understand why Pakistan's regional cities are sometimes overlooked, where great majorty resides in the vast agricultural rich regional areas and mineral rich interior. In the next fiscal budget the agricultural cash rich regional centers be allocated substantial amount to upgrade critical infarasturctures, upgrade of airports, hospitals, primary schools, universities, social activites, and construction of new market roads as well as market access to places of delivery of rich minerals like iron ore, coal,copper,naural gas, oil, fertilizers etc. Turn the focus of taxation to cash rich agricultural regional centers, small metropolitan cities and towns to increase taxable revenue. Over the life of Pakistan the agricultural regional centers experienced tremendous economic expansions, small cities capital growth, health facilities,primary schools, hospitals, medical and engineering universities. Agricultural produce capital gain leaving a fine footprint in terms of raised living standards, acquired purchasable luxury, and increased demand for consumer goods. The standard of living increase can be gauged from many comfortable new satellite towns, rich suburban housing areas surrounding the small metropolitan cities, consumer good purchases like motorcyles, cars, landcrusiers, tractors, mechanized farm implements and development of new underground capitalism supplying goods to local regional bazars, major population centers like Karachi, Hyderabad, Lahore, Islamabad, Faisalabad, Peshawar, Quetta on daily basis. Pakistan major urban centers " import," these goods from the surrounding interiors and as far flung as valley of Swat. The " export," of cash return to the surrounding interior on daily basis add to consumer inflationary pressures as untaxed floating money tend to increase price of housing lands, daily living cost, and a chase for imported consumer goods. The windfall capital gain in all sectors now need to be taxed for greater good of common man.

Shamsi Ajanee | 13 years ago | Reply Yes; this is the right approach. As a first step all provinces should be asked to revise Produce Index Units (PIU) on agricultural lands that were fixed in 1958. The revised PIUs should reflect the market rates and should also consider extra weight-age for Fruit farms. The center should give a tight time line say till 30 Sep 2011 for this exercise and the center should provide expert advice and coordinate the exercise for harmonization of PIU determination mechanism between the provinces. FBR should be the coordinating agency

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