Perhaps the most challenging task for provincial authorities is to collect the potential revenue that can be generated from tax on farm incomes.

The efforts of successive governments, including the incumbents, have been dismal because of a pattern of family/individual farm ownership and the lack of wherewithal to go about the job in a difficult rural social environment.

There is also a strong public opinion that commensurate efforts are not being made to overcome this big challenge because it is not politically convenient for the provincial governments to tax rural gentry.

But an enabling environment is being, or has been, created for better taxation of agriculture: digitalisation of land record, proposed enactment of the benami law and a fresh approach outlined in a working paper, released last month, on ‘unlocking Pakistan’s revenue potential’ written by IMF staffer Serhan Cevik.

Yet the provincial governments response to these developments can not be predicted.

Cevik has suggested the introduction of land based tax rates ‘adjusted according to the productivity characteristics of agricultural lands’ to facilitate better taxation of the agricultural sector ‘on a progressive scale.’ The IMF expert, however, wants ‘an appropriate threshold to protect low income farm households’.

Digitalisation of land records coupled with the enactment of benami law would provide enabling conditions to improve tax revenues from agriculture as the computerisation of records is likely to cripple patwari culture

His suggestion for levying presumptive taxes on agricultural turnover has come at a time when agribusiness is fast picking up and the number of companies in this segment being registered with the Security and Exchange Commission is increasing at a steady pace.

The IMF may claim that the views in the working paper may not necessarily reflect its thinking but the publication of such papers on its website does send soft signals/ideas to the relevant quarters on options they can consider for resolving their outstanding issues.

The paper somehow coincides with the FBR’s revision of urban property evaluation tables, pleading for ‘tax rates adjusted to productivity characteristics of agricultural lands’. Currently landholdings up to 12.5 acres are exempt from taxation. Farmers owning up to 25 acres pay Rs100 per acre.

The rate increases to Rs250 for holdings between 26-50 acres and Rs300 for 50 acres. Farmers who own over 50 acres of land, are also required to file for income tax.

Earlier international financial institutions had persuaded the provincial governments to digitalise land records with clear title of ownership of farmlands to encourage documentation and more lending by banks. The benami law, likely to be enacted by the end of this year, is designed to unveil the actual owners.

According to Serhan Cevik, over 90pc of the farmers ‘appear’ to have landholdings of less than 12.5 acres, farm income remains largely untaxed and annual tax revenue stands at an average of Rs270 per acre. It may be recalled that ownership of land was dispersed by big farmers to mitigate the effect of landholding ceilings set by Ayub and Bhutto’s land reforms.

Digitalisation of land records, coupled with the enactment of the benami law, would provide enabling conditions to improve tax revenues from agriculture as the computerisation of record is likely to virtually cripple patwari culture.

Yet the major hurdles in taxation of agriculture are unlikely to go away:

Ffirst the pattern of individual ownership (personal income is not very tax compliant even in urban areas.) Farmers have neither opted for cooperatives or corporate farming.It is the corporate entities that can be taxed with less difficulty given the will of the government in power.

Secondly the provinces, producing a budget surplus with a limited capacity to absorb available funds for development, will not feel the pressure to raise more revenues from agriculture.

Their first priority will be to further enhance their revenues from sales tax on services. This is an area where they have outperformed the FBR and tax collection is easier. Adding to that the provincial revenue authorities have not yet been able to shake off much of their lethargy.

Finally there is much to do to upgrade overall governance.

Published in Dawn, Business & Finance weekly, September 5th, 2016