EDITORIAL: It’s about time the government turned its attention to milking some of the long-overdue income tax on agriculture that the country’s landlords, big and small, have been evading since forever. The expansionary budget, the need to avert a Balance of Payments (BoP) crisis and especially this fiscal year’s ambitious revenue target all beckon the government to turn its attention to extracting due taxes from our feudal lords, who have been allowed a constitutional window to keep their tax money with themselves because they have dominated parliament practically since Independence.
Since agriculture is a provincial subject and the federal government is unable to tax it, it’s come up with a rather smart idea of getting the Federal Board of Revenue (FBR) to offer provinces, in the spirit of cooperation of course, to issue system-generated notices to taxpayers, who declare agriculture income in the federal income tax returns, to duly discharge their tax liabilities with the provinces. As things stand, taxpayers can use one of two ways to pay income tax on agriculture to provincial governments. One is the book keeping method, where expenditure is subtracted from income, which is then taxed. And the other is the indirect/presumptive method of estimating tax liability by calculating the area under cultivation, then calculating the per-acre yield, then fixing a rate to be paid as agriculture income tax.
It is no surprise that almost all landlords prefer the latter because it involves no audits or assessment proceedings, just per-acre taxation. And they can wave it in FBR’s face whenever it comes to questioning about the source(s) of income that enables all the spending. But FBR’s new offer of sharing their declared incomes, which can be cross-checked with the taxes paid, ought to bring this difference into sharp focus. That this thought process started after it came to light that slightly more than 161,000 filers in the country declared Rs 79 billion in agriculture income in tax year 2020 and claimed exemption shows that the government has a very good idea of where it is starting from.
It should also know then that this is not the first time that some administration has felt excited about revolutionising tax collection, drawing the fair share from agriculture, and also, for once, meeting the revenue target. Back in 2013 also the FBR introduced an amendment to Section 111 of the Income Tax Ordinance 2001 to crack down on all those who played the agriculture card to evade taxes. But once all the noise was made the Board did not take any further action and landlords have continued to hoodwink the system.
Regardless of how quickly the government follows through on this initiative - or whether it does at all - it is at least good for strengthening the case that provincial governments should change their procedures and insist that agriculture income be taxed in the normal way by presenting accounts instead of deliberately allowing indirect provisions like a per-acre fixed amount. There’s no doubt that Finance Minister Shaukat Tarin is watching this very closely. Everything he has staked on the expansionary budget ultimately rests on the FBR’s ability to increase its revenue collection; and that too rather quickly. After all, he’s promised the IMF (International Monetary Fund) that the first quarter’s numbers will show a robust growth in tax collection, and the annual target of Rs 5.829 trillion will look a lot more achievable even without additional taxes.
This matter is now going to test the government’s resolve. There’s a very good chance, surely, that the first wave of resistance it will face will come from within the government, perhaps from the cabinet itself. It’s for a reason, after all, that some kinds of reforms never get off the ground in Pakistan. And this one is about as high on that list as any other. Either way, it will not be long before tax authorities can see for themselves how this is turning out.
Copyright Business Recorder, 2021