THE State Bank of Pakistan has estimated the rupee value (at current prices) of agricultural goods — including crops and livestock — produced during the last fiscal to be Rs3tr, or a little less than the industrial output of Rs3.2tr. This reflects what SBP Governor Shahid Kardar recently described as a “structural shift” of incomes towards the untaxed sectors. There is no denying that rising rural incomes have sustained industrial growth during the last couple of years in the face of one of Pakistan's worst economic slumps. However, agricultural incomes remain out of the tax net. Mr Kardar worries rightly that this shift will defeat efforts to increase the country's tax-to-GDP ratio of less than nine per cent — one of the lowest in the world. Thus, the shift of incomes away from taxpaying sectors demands that non-taxpaying sectors like agriculture be immediately brought into the tax net. Big growers hold that the implementation of agricultural income tax is not feasible because of fractured landholdings, especially in central and lower Punjab. What about the incomes of big landholders in south Punjab and Sindh? Why should they be exempted from paying tax? This is against the principle of an equitable tax system.

They also argue that the agriculture sector is already burdened by indirect taxes. The unwillingness of the provinces to levy income tax on big landholders has led to the imposition of various indirect federal levies on farm inputs. This is unfair to smaller farmers. The rising commodity prices make a good case for taxing rural incomes directly to protect smaller growers from indirect taxation and raising revenue for development. While the escalation of agricultural incomes is good for the country's vast population living in villages, this must not shift the focus from the dire need to boost productivity. The current rural prosperity is driven by the escalation in global commodity prices rather than increased productivity. Our agriculture yields per acre remain one of the lowest in the region. The revenues generated from agricultural income tax could be invested in improving technology, water management and research for raising crop yields.