Taxing farm incomes
THE government provides security, infrastructure and regulatory framework to commercial concerns and in return takes away its share from the wealth created by business enterprises in the form of taxes and duties.
While there are yardsticks for fixing the proportion of shares of direct and indirect stakeholders like providers of capital and labour, there is no yardstick to ascertain the size of the share to be appropriated by the national exchequer.
If one looks at the wealth distribution declaration of the leading fertiliser (urea) manufacturer — Fauji Fertiliser Company (FFC) — one would discover that 57.4pc (Rs40,859 million) of the total wealth created in 2012 went to the government, as indicated in the company’s annual report for the year ending December 31,2012 (see pie chart).
Simply stated, the government took the lion’s share, as 25pc of the wealth was distributed to the providers of capital and 7.3pc to employees, which is again taxable, while retained earnings were 10pc and donations to the society accounted for 0.3pc.
This 57.4pc share of the government in the gains pie includes income tax, sales tax, excise and custom duty and excludes the Gas Infrastructure Development Cess, which is charged on feedstock and fuel stock gas.
In the year 2012, FFC produced 57.89 per cent and Engro Fertiliser Limited (EFL) 23.57pc of total domestic urea production.
The price of urea has skyrocketed in recent times and so has fuel and electricity charges. The biggest beneficiary of these hikes is the government, and the biggest loser is the farmer, at least in the case of the fertiliser sector.
It is clearly a fallacy to assume that the agriculture sector is tax-free. The government mercilessly rips farmers through excessive indirect taxation, which results in decreasing the possibility of their earning a fair income despite all of their hard work.
Agriculture contributes 21pc to the GDP. This imbalance results in an increase in food inflation and is also detrimental to farm productivity. There is a need to fix the industry-wise ratio of the share of wealth that should go to the government. Policymakers should look into these matters and come up with a plausible solution.