KARACHI: Noted development economist Dr Kaiser Bengali has said attempts to mobilise revenue through income tax on agriculture won’t generate a substantial amount given the average farm size in the country.

Speaking to journalists after holding a training workshop on budget reporting at the Karachi Press Club on Wednesday, Dr Bengali said a majority of growers work on small farms and earn barely enough to qualify for income tax.

Income tax on agricultural income is a provincial subject and applies to those farmers that earn Rs600,000 or more a year. Its collection remains minimal though, drawing vocal protests from the urban segments of society.

“I used to be a proponent of taxing agricultural income until 10-12 years ago. I changed my opinion after looking at data, which shows the number of large landholders is so small that it’d hardly make a significant impact on the total revenue generation,” he said.

In 2021-22, the latest fiscal year for which provincial data is available, Sindh collected only Rs707.4 million in tax on agricultural income. The sum amounted to less than 0.3 per cent of total provincial tax receipts in the same year.

However, Dr Bengali said taxing agricultural income is justified from the perspective of equity, which means everyone above a certain income level should pay taxes in proportion to their earnings.

Income tax on agriculture equals only 0.5pc of the agriculture GDP while the tax contribution by the manufacturing sector amounts to 29pc of the sectoral GDP, according to Dr Bengali’s calculations.

There’re 42.6 million acres of cultivated land distributed among 8.2m farms across the country, according to the 2023 State of Pakistan’s Agriculture report prepared by the Pakistan Agricultural Coalition and the Pakistan Business Council. About 45pc of the cultivated area is in farms that are less than 12.5 acres each.

Only 13,500 farms are of more than 150 acres collectively holding 1.5m acres of land. As a result, a vast majority of these farms are “highly unlikely” to own machinery storage, cash reserves given that “they’ve hardly any ability to invest,” according to the report.

Dr Bengali said he saw no rationale in increasing the tax rates in the upcoming budget. “The number of affluent people is too small. In a recession, you’re supposed to decrease the tax rate, not increase it,” he said, noting that the country is essentially in a recession going by the negative growth rates posted by commodity and large-scale manufacturing sectors.

He advised the federal government to decrease the general sales tax rate from 18pc to 5pc while clamping down on real estate and stock markets to divert the investable capital towards the job-creating industrial sector.

He also called for the rationing of petrol to 150 litres per car along with an immediate shutdown of all power plants that operate on furnace oil and imported coal.

“The only way forward is to reduce expenditures, including that on defence,” he said, adding that sovereign default seemed imminent in the absence of the International Monetary Fund (IMF) programme. “No one will bail us out this time around, not even China, which is also a member of the IMF,” he said.

Published in Dawn, June 8th, 2023