QUITE often, the provinces, especially Punjab and Sindh, are subjected to severe criticism mostly by urban taxpayers, for their poor collection of agriculture income tax; and also accused of sparing landowners from this tax which, if enforced effectively, can significantly raise the revenue figure.

Punjab, whose agriculture income tax (AIT) collection fell short by 33pc in the last fiscal year, blames the court stay orders against the tax for the fall, although revenue collected through this tax was officially expected to reach only 60pc of the target of Rs2.3bn. The AIT collected in Sindh since 2002, when it was levied in the province, has also been quite unimpressive.

However, to silence the growing criticism, the Punjab government intends to tackle problems in the proper implementation of tax collection on agriculture income from 2017-18;a year later, after having developed mechanisms and put in place efficient systems, Provincial Finance Minister Ayesha Ghaus Pasha said on the 2016-17 budget eve.

The AIT, which was introduced in its new form on July 1, 2015, has been challenged by some big landowners in the courts claiming it was unnecessary and frivolous because they were already paying agriculture-related taxes such as abiana, malia and income tax.

Some farmers associations in Punjab have described it as double taxation which compelled many to avoid the tax for the 2015-16 fiscal year. Board of Revenue member Asad Islam Mahni has rejected the charge of double taxation and said court stay orders were becoming irrelevant because the BoR has got relief from the superior court in AIT’s favour.

The Sindh government also intends to introduce new slabs in the agriculture income tax in a move to take strict action against tax evaders and financially protect poor growers

The tax is payable by farmers having 25 acres of irrigated land or 50 acres of un-irrigated land and they are required to submit their tax returns under the amendments introduced in 2001.

The Sindh government also intends to introduce new slabs in the agriculture income tax in a move to take strict action against tax evaders and financially protect the poor growers. The government’s priority at the moment is what the finance minister calls ‘rationalisation of agriculture income tax’. But he would prefer consultations with the farmers’ bodies to find a new way to help expand the revenue base.

The issue of tax on agriculture income keeps raising its head in the media and parliament from time to time particularly when the taxpayers in big cities experience the travails of paying several taxes which keep increasing every year and often exceeding their paying capacity as far as the middle class is concerned. They feel being discriminated when they find landowners community paying no taxes in lieu of land revenue, or much less than what they do.

Speaking at a meeting of Senate Standing Committee on Finance in June 2014, Federal Finance Minister Ishaq Dar did not agree with a proposal of some of its members that collection of tax on agriculture income be transferred to the federal government because, he said, it would be a violation of the constitution. However, it could be done only when the provinces authorise federal government to do so. He lamented the extremely low tax collection by the provinces from a sector that has 21pc share in the GDP.

What has been happening in Sindh is quite shocking to learn. The Sindh Assembly was informed in March this year that not a single landowner had paid AIT in Sukkur district during 2012-13 fiscal year although there were 157 such individuals in the district falling in the tax net. Similarly, in Ghotki district only four landowners out of 141 paid the AIT. Across the province, out of 7,366 rich farmers only 1,343 (roughly 18pc) paid the AIT during the year.

Sindh Senior Minister Nisar Khuhro, who provided this information to the house, acknowledged the fact that the agriculture income tax collection had been very low since there had been no ‘focus’ on the collection of this tax by the provincial government.

The injustice here refers to the change in the taxation mode on agriculture. The change came after the Income Tax Ordinance 1997, was amended in 2001. The difference between the two is that the 1997 tax on agriculture was in fact on the size of the landholding and was hence called ‘land tax’ or land-based tax which often remained unchanged unless there was expansion in its size. It is an old tax imposed in the undivided India by the British. The 2001 tax, now effective, is a tax on income drawn from crops and other agricultural activities by the landowner.

According to Dr Tariq Bucha, director, Farmers Associates Pakistan which represents the interests of big landowners, all policymakers of the world agree that collection of tax on small business, services and agriculture is very difficult but tax on agriculture income is even more difficult to collect because in under-developed countries most of the transactions of income and expenses are done without receipts.

Published in Dawn, Business & Finance weekly, July 18th, 2016