THE Khyber Pakhtunkhwa government is working on a scheme to introduce a self-assessment for agriculture income taxpayers to widen the tax base and improve provincial revenue. The Board of Revenue (BoR) responsible for collecting this levy, will opt for the new mode of tax collection after chief minister’s approval, a senior official tells Dawn. The move is supported by the federal government and the Federal Board of Revenue is likely to lend a helping hand.

The provincial government has been collecting the agricultural income tax (AIT) since long. However, its overall contribution to tax collection remains less than 0.5 per cent of the provincial tax revenue, owing to ineffective revenue administration.

For FY2011-12, the provincial government has set an overall target of Rs3.6 billion of which the expected recoveries from AIT will be merely Rs21 million despite agriculture’s substantial contribution to the provincial GDP.

“We do not have exact data on the actual share of the agriculture sector in the provincial GDP, as it is not calculated at the provincial level, but 68 per cent of the economy is rural based with agriculture as an important component,” the official explains. He was making the point that farming has a huge potential to pay income tax.

Currently only 112 persons pay the AIT across the province and surprisingly in the Peshawar valley, the food basket of the province, hardly nine persons pay this tax. They are earning decent income, with the spiraling prices of vegetable, fruits, and other farm produce.

Citing proposals sent to the chief minister, the official says the government’s plan is to encourage growers to pay the tax as per worked out self assessment scheme.

According to the new procedure, growers including tenants will be asked to file their annual returns, showing their expenditures, sales and profit, with the Deputy District Officer (Revenue). On the basis of this return, income tax will be collected from them.

In case, the official explains, growers are found hiding their actual income, they will face high penalties. The important aspect of these measures is that both the landowners and the ‘tenants’ (in case the land has been leased out), will pay the tax unlike land revenue which is only paid by land owners, the official says.

Currently, the AIT is wrongly collected on flat rates basis, which in fact, has been devised for the Land Revenue Tax (LRT) by the revenue official in the field, resulting in losses to provincial kitty. The Agriculture Policy-2005 had exempted 5-acre agricultural land from LRT.

The revenue officials are required to compile an yearly report on the quantum of agriculture produce in their respective districts and also the cost and income of growers. But they do follow the rules, the official laments.

The new collection mechanism including documenting of records will be a challenge, both for the tax collectors and taxpayers.

While there is no need for a separate arrangement to be put in place for filing AIT returns given the current provision of law, the capacity of the revenue officials responsible for the job remains lacking. Officials working at Tehsil and district levels do not exactly know how to calculate the tax, keeping in view the cost of production and the expected returns from a farm.

Also, collection of AIT is considered by the revenue officials as a secondary job, because the handling of revenue record is the most lucrative pursuit for them.

The FBR has been approached to give basic training to these revenue officials as how to compute farm incomes on the basis of returns to be filed by growers.

Another major issue is that a majority of growers are illiterate and are unable to keep a record of expenses, sales and returns, which they will have to do once this new system is introduced.

“It is difficult to get the growers to file their returns not only because they do not know how to maintain records, but also due to the general mindset concerning paying taxes,” argues the official.

The real issue is of the political will that is required for pushing hard the collection of this tax, but that too is missing for fear of a political backlash.