ISLAMABAD: Although there has been a lot of talk about tax on agricultural income in recent weeks, there is a lack of clarity in the government's position on the issue and it appears that there are no concrete plans for taxing the income of landlords and property owners for generating additional revenue.
And government leaders and officials appear to be reluctant to come up with a clear-cut decision or a plan of action.
Finance Minister Hafeez Shaikh recently made public his plan to tax the affluent class, including owners of large land holding and expensive property. But he did not elaborate the plan.
President Asif Ali Zardari and Prime Minister Yousuf Raza Gilani have kept quiet on the issue.
A meeting of the economic advisory council headed by economist Dr Hafeez Pasha held on Thursday observed that there was massive evasion of tax in the agriculture sector and advised provincial governments to send notices to the big landlords asking them to file returns.
However, the meeting did not discuss the structural hindrances which cause a low collection from the sector.
As a first step, the government will have to adopt a produce index unit (PIU) for the assessment of tax on agriculture income in the provinces and improve land revenue records, Vakil Ahmad Khan, a senior member of the Tax Reform Coordination Group (RCG), says.
Talking to this reporter on Sunday, he said: “The government may not be able to levy a central income tax on agriculture in the short term until these structural problems are removed.”
As a result of land reforms, the government has set 50-acre land holding as the benchmark for income tax exemption.
This has provided room to landlords, especially in Punjab, to minimise their land holdings to evade taxes by transferring ownership on paper to their relatives and servants.
An official of the Federal Board of Revenue said that unless the government did away with the benchmarking mechanism it would not be possible for the provinces to raise sufficient revenue from big landlords.
At the moment, provinces are charging tax on the basis of the size of land instead of its productivity and efficiency, which has yielded negligible revenue in Sindh, Khyber Pakhtunkhwa and Balochistan as compared to Punjab over the past more than 60 years.
RCG member Vakil Khan said: “In principle, the committee's members are not against the agricultural income tax, rather they believe that that it can be adopted as a long-term remedy to raise the tax-to-GDP ratio.”
He said the PIU value should also be updated. The productivity of land had increased manifold in some areas and declined substantially in others. The PIU method for the assessment of income tax was proposed in the 1970s, he added.
It is believed that the tax exemption on agriculture has created a temptation for people to show a part of their income from other sources as agricultural income to evade income tax.
The government of Zulfikar Ali Bhutto had imposed a tax on agricultural income through an ordinance in 1977, but before the law could be enforced Gen Ziaul Haq promulgated martial law and suspended the tax. The matter was then left to the provinces, yielding negligible revenue.
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