MULTAN: Taxing the agriculture sector has always remained a tricky issue owing to its political, social and technical implications. It is often alleged that a strong lobby of landed gentry has been impeding levying of tax on farm incomes, thus depriving the country of a chance to widen its tax base.

However, some economists say that a few landlords with political clout become the source on which urban elite (both financial and intellectual) rests its arguments to paint all the agriculturists dark as if they are merry making without fulfilling their obligations to the country. Whenever taxes are discussed the demand to tax the farm sector to the tune of its share in the GDP is made.

They say that continuous fragmentation of land, high incidence of poverty and rampant underemployment coupled with ever-increasing inputs cost and diminishing incomes due to flawed marketing system are the hallmarks of the rural economy.

The rural areas have been lagging far behind the urban areas vis-à-vis social and physical infrastructure as almost 40 per cent of the villages are still devoid of electricity while majority of them have no proper health, education, sanitation and recreational facilities, they add, questioning “does the government spend as much resources in the rural areas as is the share of agriculture in the GDP?”

Farmers Vision Forum’s chairman Khwaja Muhammad Shuaib says that the farm sector has been overburdened with indirect taxation as among all the 15 per cent levy of GST imposed on the agricultural inputs has to be paid by the growers. Besides, farmers have to pay a number of direct taxes ‘malia’ (land revenue), local tax and Ushr in addition to the currently in vogue agriculture income tax. “Incomes/salaries up to Rs100,000 are exempted from income tax but not even an acre of farm land is off the hook regarding payment of malia,” he maintains.

Some economists plead that experiences in developing countries with agricultural base has showed that taxation and growth have an inverted relation, lower the tax on agriculture, higher will be the growth and vice versa. Better incomes in the agriculture sector help reduce the rural-urban migration besides making available more resources to employ modern techniques to enhance productivity of the available land. “The phenomenon will ultimately benefit the government, industry and urban consumers in the form of net revenue gain, cheap raw material and lower food prices, respectively”, they add.

The 7.5 per cent growth of the agriculture sector during the last fiscal had been instrumental in the much-touted 8.5 per cent annual economic growth rate of the country.

The agriculture income tax in its current form is in fact a land tax as it is levied on ownership of land rather than on income. The agricultural incomes fluctuate considerably from year to year depending on a host of factors particularly weather conditions. So, the assessment of agricultural income is not an easy task. If one wants to calculate it on the basis of crops sown, then the task becomes more complicated because the output varies from one piece of land to another and one farmer to the other depending on land fertility and quality and appropriate use of inputs besides the general agronomic practices.

Figures show that the collection of agriculture income tax in Punjab and Sindh has been declining and this is mainly due to further distribution of land owing to the system of inheritance under which the landholdings of a man or woman have to be divided among his/her heirs. In this way, a sizable chunk of agricultural land has come out of the tax net.

It may be added here that the canal irrigated lands are exempted from the agriculture income tax up to 12.5 acres while the rain-fed up to 25 acres. The orchards up to 5 acres are also excluded from the income tax.

Rural economists say that before resorting to bashing the farm sector for economic ills of the country, the business elite and writers of economic issues based in cities should realistically account the amount of direct and indirect taxes being contributed by the agriculture sector to the exchequer.

Continuous transfer of resources from rural to urban Pakistan through taxation and price interventions under the financial wizards of industry-funded Lahore University of Management Sciences will cast long shadows of socio-economic and political problems in rural Pakistan.

Almost 70 per cent of the country’s population lives in the rural areas and as much earn its livelihood through the agriculture sector in one way or another. The sector absorbs almost half of the country’s workforce and in return it gets peanuts from the policymakers. In the 2005-06 budget, the agriculture sector was allocated development funds around Rs9 billion as against the demanded Rs23 billion to carry out various projects.

The industrial sector was extended a host of incentives and concessions included dropped rates of income tax, sales tax, excise duty and customs duty and the few incentives given to the farm sector were meant to fashion corporate farming in the country.

Agriculturists plead that the government should first invest in the improvement of rural infrastructure to the tune of agriculture sector’s share in the GDP, liberalise movement of the farm products and evolve a mechanism to ensure international parity prices to the growers on their produce before further taxing the rural people.