Negligible tax on income from agriculture in Pakistan is one of the key issues due to which the government is unable to meet its set target of revenue, causing a budget deficit. In developed countries, governments rely on the industrial and service sector as they contribute more to the economy. But in underdeveloped countries like Pakistan where the agriculture sector is contributing around 24% of the GDP, it can a play vital role in revenue generation.
In Pakistan, the agriculture sector pays less taxes as compared to other sectors due to big landlords with political influence, who are only 12% of the total number of farmers, hide behind the 88% of small farmers. The agriculture tax ordinance in the country was enacted in 1997 and amended in 2001. Amendment in 2001 states that 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 pro forma and has to pay tax on land ownership basis or on income from agriculture, whichever is higher.
Tax was also imposed on the ownership of land in 1997, but it was unsuccessful due to many reasons. One of the main reasons was lack of political will as most politicians belong to the agriculture background and are considered landlords in their constituencies. Another reason is that proper documentation regarding ownership of land is not maintained. If the government wants to meet its tax revenue target, it should focus on managing the tax exemption for the agriculture sector.
Firstly, the number of small farmers in Pakistan is 88% and the total number of big farmers is 12%. The distribution of land resources among farmers is skewed. About 40% of the total farmland is controlled by the 7% of big famers. Due to the absence of land reforms, all subsidies and farmers-based incentives provided by the government are enjoyed by the landlords, who have easy access to resources and technology. Pakistan needs to implement the justice-based land reform system because it is the major element in poverty alleviation for poor farmers having small land holdings. The government should also provide opportunity to landless farmers so that they can improve their social status and so that a big part of small farmers — ie 88% — could be saved from incurring losses.
Secondly, a lack of awareness among farmers regarding payment of taxes is also a reason for less tax collection. Farmers do not keep proper documentation and do not maintain proper records of transaction and are also unaware of the tax system. In view of this, the government should give them proper information regarding the tax system — on what income and on what size of land area ownership, tax should be imposed. If the Government of Pakistan provides subsidies to farmers, it’s the responsibility of farmers to pay the amount of tax according to their income and ownership of land.
Thirdly, the tax collection system of Pakistan is highly inefficient because in the agriculture sector, patwaris collect tax on parchi (chit) where no proper receipt is issued to farmers and no proper record is maintained. In the view of this, we need to create an efficient tax system with a proper system for documentation, while ensuring farmers that the entire amount collected in taxes will be deposited to the government account.
Lastly, tax evasion should be reduced by controlling not just corruption but political interference as well. Tax should be collected according to the income of farmers and ownership of one’s land. Less tax should be collected from small farmers and more from big farmers. Moreover, farmers acquiring land less than four acres should not be taxed and the tax collected should vary according to the size of one’s land. Such a system will ensure tax revenue for the government.
Published in The Express Tribune, December 15th, 2018.
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