The Punjab government has stopped collecting agriculture income tax following a stay order by the Lahore High Court, the provincial agriculture minister announced last Wednesday.

Apart from street protests by farmers, over 1,000 petitions challenging the tax have been filed in the Lahore High Court.

The Punjab Revenue Authority (PRA) was never able to collect the targeted amount. Last year, it reported a 33pc drop in collection — only Rs1.55bn could be collected against a target of Rs2.3bn. This year, though the target was kept the same, collection problems have increased since most of the farmers have simply refused to pay following the court’s stay order.

Farmers claim that tax, at least for now, hardly makes sense as the agriculture sector is under stress… they suggest, the government continue collecting land tax as it is static and remains outside the discretion of revenue officers

Farmers claim that tax, at least for now, hardly makes sense as the agriculture sector is under stress and gigantic official efforts are underway to revive it. They contend, both federal and provincial governments are competing extending subsidies to put farming back on its feet.

The federal government had announced a Rs341bn package, which included Rs5,000 direct subsidy to farmers, last year. During the current fiscal, it offered a Rs20bn subsidy on fertiliser alone, along with cutting electricity rates and reducing mark-up on credits and duties on import of certain machinery. Punjab itself had announced an Rs100bn Kissan Package last year and this year offered Rs100bn interest-free loans. As compared to the huge subsidies the total tax target was a paltry Rs2.3bn.

‘Does taxing the farmers under such conditions make sense?’ ask farmers. With over 96pc farmers owning less than 12.5 acres, does the government really think they are making money out of the land? If so, why subsidise them? If not, why tax them? There seems to be a policy disconnect.

In addition to this the farmers have also raised two other major objections: in case of income tax returns for non-farm income, the first Rs400,000 are exempted. In case of agriculture income tax, the exemption is only Rs80,000. Businessmen are supposed submit returns through a self-assessment process whereas all the lower-rung revenue officers (patwari, naib tehsildar and tehhsildar) are there to assess the farmers’ income. These objections became big issues both inside and outside courts.

It is not to oppose taxation of agriculture income per say; everyone making money from any source should be taxed. However the tax collection could be put on hold till the revival of agriculture.

Meanwhile, as the farmers suggest, the government continue collecting land tax, and also make it progressive. The current value of land tax is certainly too low, Rs100 per acre, because it was fixed way back in 1991, and can be revised upwards. Farmers have no problem with it as it is static and remains outside the discretion of revenue officers. With yields going up, tax can be increased.

Published in Dawn, Business & Finance weekly, October 31st, 2016