HYDERABAD: The Sindh government is said to be contemplating increasing agriculture income tax (AIT) recovery by revising down the exemption limit to Rs600,000.

In a telephonic conversation with Dawn on Saturday, Sindh Board of Revenue’s (BoR) senior member Qazi Shahid Parvez said no decision had been taken, but there was a view within the government that tax exemption on agriculture income of up to Rs1.2m should be halved.

“The potential for AIT recovery in Sindh is immense. I feel we can raise the AIT recovery 10 times to Rs20 billion in view of experimental estimations of tax collections,” remarked Mr Parvez.

One of the provincial tax receipts, the AIT has been a controversial subject. Growers have shown the tendency to pay the tax in overall provincial receipts. “When tax imposition was being debated our position was that farmers should pay it. We were criticised by friends for siding with government to tax farmers. You won’t see any resistance on our part which is usually seen in the retail sector,” said Sindh Abadgar Board (SAB) vice president Mehmood Nawaz Shah.

Tax recovery looks disproportionate in province given the immense potential in major crops’ production

He then went on to highlight another point. “The growers are faced with double tax returns filing. Even after filing tax returns before assistant commissioners we are still required to file returns with the Federal Board of Revenue (FBR), otherwise we won’t be considered as filers.”

Farmers should not face this situation when they are submitting returns with the provincial tax machinery, he contended.

Disproportionate recovery

Sindh is Pakistan’s second largest agro commodities producing province after Punjab. Crops grown in the province include cotton, rice and wheat. However, the AIT recovery looks disproportionate in the province given the immense potential in major crops’ production, something which was realised by the provincial BoR which collects tax under the Sindh Agricultural Income Tax Ordinance 2001. An agriculture income beyond Rs1.2 million is taxed through this law.

Sindh’s AIT figures in FY20 show that only Rs619.573m — 52 per cent — out of the revised estimated target of Rs1.2bn was recovered. The provincial government had fixed the target at Rs2.24bn actually, but it was then revised down to Rs1.2bn. In FY19, Rs578.067m was recovered against a target of Rs2bn, showed finance department data.

For the ongoing fiscal year 2020-21, the AIT collection target has been fixed at Rs3.87bn.

Talking to Dawn, Sindh Chamber of Agriculture (SCA) president Miran Mohammad Shah sided with the views shared by the SAB representative. “Initially, the growers didn’t accept AIT as they thought it is not applicable to them when they pay dhull (revenue charges) and abiyana (water charges),” he said.

“We need to pay AIT, avail its benefits too and talk about reforming the process as well. Government should ensure tax-friendly environment,” Mr Shah asserted. He went on to say that currently the people who are paying AIT are those who have other businesses. “AIT is a liability for them as they can’t hide it. We need to bring those under tax net who are dependent on agriculture income purely,” the SCA representative said while supporting the idea of bringing more people into AIT’s net.

Slab revision

Leading economist Dr Kaiser Bengali is not optimistic about downward revision of non-taxable income. “I think the landowners’ lobby is powerful in the assembly and they might not allow it,” he said.

He also opposed the filing of separate tax returns for agriculture/non-agriculture income as it was an anomaly. “Instead of filing AIT returns with the provincial governments, the same should be filed with the FBR. Suppose, you have industry and less productive land. You will tend to show industrial profit against agriculture profit from that land and pay nominal tax. It is called tax shelter,” he said.

The SAB vice president too disagrees with the proposal of downward revision of non-taxable income to Rs600,000, saying it would not be practical. “The slab of Rs1.2m income being non-taxable is realistic. If it is to be revised downward it will encourage tax evasion. Overall collections will be compromised,” he contended.

Dr Bengali said the FBR should solely assess/receive tax returns for agriculture and transfer it to the provinces as per their respective share like the gas development surcharge. “Equity demands burden of taxation should be same for all,” he summed up.

Published in Dawn, March 22nd, 2021