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Difficulties in implementation Agriculture income tax

Last week the discussion was on viability of agriculture income tax. The necessary corollary to that would be the implementation of this tax. The three major questions that need to be asked before the imposition of income tax on agriculture are:

1. whether it is practicable to apply the principles of income tax to the lands and the farmer’s income? 2. Whether the income tax could be revised in the light of the agrarian system where 93 percent are small holders and of these 60 percent are less than three acres. 3. What would be the cost of such a system in terms of organisational structure? If this be the case how many assessees will ultimately have to be assessed? A corollary to these questions would be what would be: the unintended consequences of such an action on the farmers and how would they react. Is there a desire to use the current income tax methods for the rural areas? I do not think that the matter has been given due consideration and this policy may yield petty returns to the exchequer and could there be unintended consequences of this policy. If one were to consider the rural areas of the provinces it is clear that the writ of the federation is not applicable uniformly across these areas? Would it then be wise to apply this policy across the provinces irrespective of what the outcome will be? There have been spasmodic attempts at the implementation of this tax before and the evaluation of this is not available. So where do we stand?

The age-old system is so deeply ingrained in the rural areas like the old banyan tree that it may be difficult to uproot the ingrained attitudes and values. In any case Pakistan is a disaster in terms of changing any attitudes as none has ever been tried. So of the general principles of FBR are not applicable how is that matter to be implemented? If uniformity is impossible will each farmer be assessed separately? That is a daunting task. The rural population is about 62 percent and spread wide and far. How many hands will be required to do the needful? But with the Board of revenue in position in each province I am sure that they must have advised the political system or was this done by the formal industrial sector that is keen to shift the focus from its tax evading policies. The FBR and the industrial sector have an unholy alliance that is not easy to break. Anyone who does so will land him on the road (and in serious trouble) before long and we have seen that happen to many Chairmen. With so many WB induced reforms we are still groping in the dark. No FBR can ever be free and independent as all the FM and the governments are looking to maximise revenue.

Since habit and precedent count for more than wisdom there is need for reform of this sector.

In fact what this means is that all the definitions that at present define the sector will have to restated. One cannot impose one tax on her and get away with it. So if net assets are to be redefined [of which the land revenue is a fixed proportion] then the shift is to profits that these land yield. Then there are other major questions to be answered in terms of assessing income and the cost of producing that income. The farmer’s income is limited by the middlemen whose income is beyond proportion. In a study carried out for agriculture prices it turns out that the farmer as producer of commodities generally receives only 29% of the end price. The middlemen receive about 50% of that end price. The transaction costs take away the rest. Take the impact of urbanisation and the inflationary prices that you see in the market for these commodities do not benefit the farmers. The reasons for this inflationary practice are other wise. The inelasticity of the prices at harvest is a noteworthy concern for the policymakers. The Punjab had 650 odd agriculture markets in 1947 and these have reduced to 129 or so.

Given these circumstances, is there any possibility of adding to the exchequer? The administrative requirements are massively formidable. Given the recent Musharraf reform, the rural areas’ structure has been badly mauled. The deputy commissioners had three hats to wear-as District magistrate he was under the high courts, as deputy commissioner he was effectively working for the chief minister and as collector he was supervising the agrarian system and the revenue authority. Now there is a vacuum. In the implementation of this tax will the hounds be let loose on the poor farmer, majority of whom have no voice to air their grievances.

Elaborate and costly enquiries will have to be made and one cannot rule out the possibility of law and order situation arising out of these acts.

But without prejudice to the above when a section is taxed then the government has to provide certain services to the taxed community in lieu of the tax. So far precious little has been provided to the rural areas. Once they begin seeking their rights there will be hell to play.

What will be done for the districts that have arid conditions where failure of crops is common? Above all when the profit is to be calculated by the pygmies of the revenue department how will that be done and how will discretion be played out for Balochistan, for Pata, Fata, for GB, for Cholistan, Thar and such other marginal areas. So think a while.

The minute more power is given to the patwari the old proverb comes to mind – Niche patwari ooper Kartar – (Sikh saying). Discretion is more likely to be abused where there is no supervisory authority. The days of responsible performance have not dawned in South Asia yet. So when the Patwari is let loose what will happen to the poor farmer? Naked and debt-ridden that he is, will the skin be taken from his bones.

The principle of intelligibility is not yet understood by the country’s policymakers. What this means is that no change should be levelled on to a group that does not understand the meaning of that change.

One can go on analysing the situation in the marginal and fragile areas and keep on dilating on what is possible and what is not. One last word is about the unintended consequences that flow from this kind of change. The poor become absolute poor and when that happens, crime against property increases. When to this is added social exclusion then crime against body increases; your choice-petty budgetary support or social risks leading to upheavals. The trade offs are simple.

There is complete dearth of theoretical work based on field conditions in Pakistan. This is true for every sector. Pakistan seems to have decided to go through with everything based on opinions. Our goose is cooked if we do not mend our ways.

Dr. Zafar Altaf, "Difficulties in implementation Agriculture income tax," Business recorder. 2013-07-27.
Keywords: Social sciences , Political science , Economics , Income Tax , Political system , Social issues , Agriculture-Pakistan , Policymakers , Balochistan , Pakistan , Agriculture , Policy , Tax , FBR