Outlook for farm income tax
FEUDAL lords, who enjoy enormous political and administrative control in Pakistan, are the poorest when it comes to paying taxes. The agriculture sector contributes about 22 per cent to the GDP, but its share in tax collection is negligible.
The agriculture policy is one of the few issues on which all military and political rulers agree. This alliance was quite evident in the case of land reforms. The issue was finally decided by a Supreme Court Shariat Appellate Bench in 1989 that declared land reforms un-Islamic.
As regards agricultural tax, its collection is vested in provincial governments. After the 18th Amendment, the concurrent legislative list is repealed. Since then, provincial governments are more or less signifying strong reluctance to explore this channel of revenue.
In fact, the legislation for agricultural income tax already exists. Punjab enacted the relevant law in 1997, KPK promulgated an ordinance in 1993. The other two provinces also subsequently passed similar laws. Yet, they have drastically failed to show political will when it is meant to implement these laws. Currently, the collection is shockingly negligent.
During 2009 Punjab collected about one billion rupees through agricultural income tax and the amount collected by Sindh was about Rs200m (Sindh’s share in the country’s agriculture can be estimated at 20 to 25 per cent).
A mere Rs1.8bn was collected by all the four provinces combined. The pattern for successive years is also quite similar.
However, the sector possesses a minimum revenue potential of Rs 250 to 300bn, considering the current GDP-to-tax ratio and the tax rate.
According to the legislation carried out by provinces on the income exceeding Rs300,000, an amount of Rs22,500 plus 15 per cent of the amount exceeding Rs300,000 is to be paid as tax.
For income of Rs200,000 to Rs300,000, the fixed amount is to be Rs 12,500 and 10 per cent of the amount exceeding Rs200,000.
Even though these are much lower than the corporate tax which is touching the level as high as 35 per cent.
Yet, we repent on very low tax-to-GDP ratio which is at eight to nine per cent. Meanwhile, most developed countries enjoy a
very high tax-to-GDP ratio. Countries like Belgium and Austria enjoy a tax-to-GDP ratio of as high as 45 per cent.
The logic is quite simple: to finance hefty budgets, there is a need for solid revenue stream. No excuse of scarce resources is ever applied in the case of financial arrangements of our economy. It is attributed to prevailing tax exemptions to our mighty class.
In the face of a grim financial crunch, provinces need to fully implement the law that has been shelved for so many years.
This can provide them, especially Sindh and Punjab, with the much-needed revenues. It can also ease the financial burden on the federal government.
Where it is evident that provinces lack the ability and machinery to collect such taxes because the established procedures provide local patwaris the opportunity to tailor tax returns according to the wishes of the wealthy landowners, the respective governments should either privatise the revenue machinery and task it with due collection responsibility or the collection can be outsourced to the FBR at a fixed percentage or amount.
In this way, provincial governments can overcome the in-built resistance and receive substantial benefits from high recoveries.
MUHAMMAD AZAM SHAIKH
General Secretary, Tax Bar Association