Study proposes incentives to farmers for paying agriculture income tax

A study conducted by the Directorate-General of Internal Audit Inland Revenue has proposed some concessions/incentives for farmers willing to pay tax on agricultural income. This will help in promoting compliance by the farming community.
It is learnt that the directorate has submitted a study on the agricultural income tax, which is based on ground realities in the country. According to the report, the government should provide inducement to the prospective taxpayers in the form of concessions, such as supply of easy credit for purchase of fertiliser, seeds and required water, etc.
In other words, a congenial environment has to be created for tax collection from the agriculture sector. Provision of tax remission should be made in case of 'bad crop' due to recent floods. Any discontentment among the farmers will be more than offset by the pleasant impact that the tax will otherwise have on the overall situation in general, and urban population in particular.
The study said that the industrial and service classes have long been clamouring for such tax, which has so far been resisted by landlords. If the government is afraid of the loss of its popularity among the rural people, it would be more than offsetting the favourable response from the urban population, particularly the industrialists and service class which, though a small segment of the total population, nonetheless, is very vocal and influential.
The theoretical desirability of agricultural income tax crops up from a number of considerations. The case for agricultural income tax flows from low contributions of agriculture to government tax revenue. It is argued that although agriculture's share in national income exceeds 23 percent, revenue raised from the sector is, at best, small.
With limited tax potential of many subsistence farmers, the land revenue system needs to be replaced by agricultural income tax for any significant increase in revenue from this sector. It is further argued that since the discrimination against agriculture in the form of low prices has ended or diminished in recent years, there exists a large untaxed potential which can be tapped by taxing this sector.
The report said that the justification for agricultural income tax is further built on criticism of land revenue system as an outmoded, regressive, and price and income-inelastic system of taxation. By contrast, the progressive rate structure of agricultural income tax permits heavier taxation of those with sufficient ability to pay, and exemptions for the poor.
Thus, the system of agricultural income tax is helpful in achieving the most cherished goals of economic development such as equitable income distribution, poverty alleviation and resultant better nutrition in the rural areas. It has also been argued that the income-based tax system would be income and price-elastic and would rid the economy of costly and politically sensitive periodic land assessments for increases in government's tax revenue from agriculture.
About the limitations of agricultural income tax, the report said that in spite of its theoretical appeal, the imposition of agricultural income tax in Pakistan seems neither too practicable nor justified on any ground--whether economic, social or political.
Under the present situation of poor administration, rampant corruption and favouritism, the successful implementation of a graduated land tax, like the various land reform attempts, can be seriously doubted. There is no doubt that various problems in the imposition and collection of agricultural tax will arise.
But these should not deter the government from delay or dilly-dallying in the matter. It is feared that the government may face resistance on the part of the powerful landlord lobby because nobody wants to pay taxes. In order to surmount the problem, the government may try to publicise, and educate, the farmers in respect of the advantages of the tax. For this purpose, pamphlets in local languages may be distributed among the farmers by the provincial governments, free of cost.