Tax panel asked not to venture into agriculture

[xenia]

As usual politics n personal interests of elites of pakistan take precedence over much needed reforms..ah how long this will go on?


Tax panel asked not to venture into agriculture


By Mubarak Zeb Khan

ISLAMABAD, Oct 28: While the international community is pushing Pakistan for taxing the rich, the government is learnt to have stopped its tax committee from exploring ways of taxing the agriculture income and asked it to only identify loopholes to be plugged to raise a few billion rupees for debt servicing.

Finance Minister Dr Abdul Hafeez Shaikh has replaced a task force on taxation set up by former finance minister Shaukat Tarin with the Reform Coordination Group with sub-groups on income tax, customs, sales tax and federal excise — with a limited scope of only identifying loopholes in the existing taxation system.

A well-placed source in the finance ministry told Dawn on Thursday that the government was facing strong resistance from landowners in the national and provincial assemblies to the proposal of levying tax on agricultural income and, therefore, the RCG had come up with similar recommendations for taxing the already taxed people.

“Almost every tax committee or taxation commission constituted since 1947 has come up with similar results - narrow tax base, low compliance, widespread exemptions, low coverage and lack of audit,” the source said, adding that the current committee had pointed out the same problems.

He was of the opinion that withdrawal of exemptions recommended by the RCG could raise only a few billion rupees, but the exemption on agricultural income had motivated income tax assessees to show a part of their income as agricultural income to evade income tax.

The United States recently asked Pakistan to tax its rich before seeking any financial help.

A knowledgeable source said the RCG had never discussed the possibility of taxing agricultural income for fear of a political backlash and, therefore, limited its work to the existing taxation system.

A few attempts have been made since 1947 to impose a central tax on agricultural income, but because of a constitutional ban inherited from the government of India Act 1935 it could not be implemented, leading to violation of the canon of horizontal equity and opening up scope for evasion and litigation.

A finance ministry official said the government of Zulfikar Ali Bhutto had imposed a tax on agricultural income through Finance (Supplementary) Ordinance of 1977, but before the act could be enforced Gen Ziaul Haq promulgated martial law and suspended the tax. The matter was then left to the provinces.

A farm tax was levied in Khyber Pakhtunkhwa in 1948, Punjab in 1951 and Sindh in 1965. But the issue had since then been put on the back burner, the official said, adding that because of strong opposition by powerful landlords no law on the tax could be tabled in parliament.

A senior official in the Federal Board of Revenue said the RCG did not recommend any new measure to increase the tax-to-GDP ratio. He said that the FBR in various studies had already pointed out sectoral contribution to federal taxes and their further potentials. “The issue is not of identification but implementation of the studies already conducted on expansion of tax base,” the official said, adding that tax committees were only reproducing findings of the previous committees.

According to the FBR study, total collection of the tax on agricultural income stands at only Rs1 billion, mostly from Punjab. Sindh’s contribution has been ‘insignificant’, while Balochistan and Khyber Pakhtunkhwa have no contribution at all.

Agriculture is the base of about one-fifth of GDP, but it contributes only over one per cent to the tax revenue.

 

[xenia]

Agricultural income tax​

IT may be called the Reform Committee Group — a group of experts brought together at the federal level to address Pakistan’s woeful tax-toGDP ratio — but it appears reform isn’t even on its agenda. According to a report in this newspaper yesterday, the RCG’s mandate has been limited to plugging loopholes in the existing tax structure, leaving the issue of a tax on agricultural income off the table altogether. Once again, the powerful landed lobby has prevailed in the corridors of power. Landowners put forward all manner of excuses for why they should be kept out of the income-tax net, arguing that they are already indirectly taxed, poor farmers will not be able to bear the burden, etc. But those are weak excuses. Just like salaried and selfemployed individuals in urban areas are exempt from paying income tax below a certain threshold income, the same should be done to accommodate poor farmers.

It is far more revealing to debate the facts agriculturalists and big landowners tend to avoid mentioning. Agriculture accounts for nearly a quarter of Pakistan’s GDP, but only one per cent of its tax revenues. Farmers enjoy all manner of subsidised inputs — paid for by other taxpayers — from fertiliser to seeds to electricity. They can avail themselves of low-interest loans and enjoy guaranteed prices on their products in the form of support prices. In truth, hundreds of billions of rupees are transferred from the urban to the rural sector each year — much of it ending up in the pockets of big and powerful landowners. Anecdotal evidence alone demonstrates the capacity for the agricultural sector to pay income tax. Around the time lucrative cash crops are harvested each season, the demand for motor vehicles spikes, with Corollas and Civics disappearing from showrooms across the country. In the cities and towns of Punjab and in Karachi, multi-million rupee homes are maintained throughout the year, the ‘poor’ owners only turning up for a few weeks of rest and recreation. The regressive and skewed tax system in this country is unjust, immoral and must be changed. Agricultural income must be brought properly within the tax net.

 

[sparklingway]

Agricultural taxation is somewhat of a provincial subject (simplifying the legalese on the issue)

 

[xenia]

Agricultural taxation is somewhat of a provincial subject (simplifying the legalese on the issue)

@sparklingway
while sales tax on goods is domain of federation (art 160 of constitution), is there any explicit mention about sales tax on services (since its provincial domain but federal govt. is collecting it)..isnt it then unconstitutional?plus pooling it national resource picture by national finance comission?
wondering why dint anyone mention it in7th NFC meetings..

 

[AZADPAKISTAN2009]

TAX THOSE WADERAS .. now ...

 

[xenia]

TAX THOSE WADERAS .. now ...

u r asking waderas to tax themselves?not going to happen any soon..

 

[mughaljee]

One more "Ragra" to poor people of pakistan.

 

[sparklingway]

@sparklingway
while sales tax on goods is domain of federation (art 160 of constitution), is there any explicit mention about sales tax on services (since its provincial domain but federal govt. is collecting it)..isnt it then unconstitutional?plus pooling it national resource picture by national finance comission?
wondering why dint anyone mention it in7th NFC meetings..

The issue over sales tax is what has delayed the RGST, remember? Provinces have the right to allow Federation to collect and distribute. Same can be done with agriculture but since PASSCO already buys a lot of staples, it might become idiotic to impose a tax. Pay them less. Economically, they are the same.