THE imposition of tax on income from agriculture may involve political risks but is necessary. The distinction made between incomes from agricultural and non-agricultural sources for the purpose of taxation runs counter to the principle of an equitable tax system and forces the state, in its effort to boost revenues, to overtax a few, and to even tax those who should not be paying any taxes at all. A country like Pakistan, with one of the lowest tax-to-GDP ratios (less than nine per cent) in the world, cannot afford to exempt agriculture or, for that matter, income from other sources from taxation. That is, not unless the state is totally unresponsive to the development needs of the people.

The importance of ridding the economy of tax exemptions for the rich and powerful has become more visible in recent years because of the yawning gap between the government’s falling revenues and its rising expenditure. Even massive cuts in development and non-development spending are not helping, while the fiscal deficit is projected to balloon to above eight per cent unless tax revenues are boosted. Growers are so sensitive about the issue that the slightest mention of tax on their incomes brings them together on one platform across the political divide — even if it means standing up to their party’s leadership. The question thus arises: will the provinces heed Finance Minister Abdul Hafeez Shaikh’s latest piece of advice and take action to effectively bring income from agriculture into the tax net to boost revenues and the country’s abysmally low tax ratio? The provincial governments may well avoid treading this thorny path if they can at a time when speculations of early elections are rife. It is hard to imagine the PML-N government in Punjab and the PPP government in Sindh taxing agricultural income at the moment, and risk losing the support of the influential lobby of big land-holders in parliament.

The provinces did not take any action to tax agricultural income in the budget for the current financial year — in spite of the fact that they had made a commitment at the time of the finalisation of the current NFC award to tax agriculture, real estate and other untaxed areas of the economy. The leadership of all political parties must realise that their failure to support equity in taxation for short-term political gains would be disastrous for the economy and add to the hardship of the common man. The more they delay taking the tough decision, the more difficult it will become for them to stop the economic rot.