Revenue from agriculture income: Federal Board of Revenue for levying indirect tax at initial stage of agriculture production

Agriculture and Livestock

Islamabad: One of the options with the government is to introduce some kind of indirect tax at initial stage of agriculture production, keeping in view the limited revenue collection by directly taxing agriculture income. The Federal Board of Revenue (FBR) has responded to comments of legislators on different options for taxation of agricultural sector.

Tax authorities are of the view that agricultural sector indirectly contributes to the tax collection in the form of sales tax on all inputs of the agriculture sector, whereas income tax would not result in any sort of big revenue collection. Around 85 percent land owners in Punjab are holding less than 12.5 acre, which is subsistence holding in Punjab. Direct imposition of tax on agricultural sector as an income tax would not result in any major contribution in revenue collection.

A more plausible way of doing it through introduction of indirect tax at the initial stage of production or the Produce Index Unit (PIU) could be used as a proxy, which is different for every district and division to start taxing the production. Likewise, cotton has to be ginned and rice has to be husked, so a levy could be easily imposed on these crops at this stage.

According to sources, the analysis of the productivity of agriculture sector is ‘must’ for taxing it in a cost-effective manner. The FBR has also pointed out that it has no expertise in handling the record and production data of agriculture land, FBR added.

When contacted, experts said that the role of provinces in tax collection is very important. In India, tax-to-GDP ratio is 18 percent, out of which 12 percent is collected by the federal government while the remaining 6 percent is collected by the federal government. The size of the GDP is ever increasing while agriculture being a large component of the GDP remained outside. The tax-to-GDP ratio remained stagnant over the years because there were no structural reforms and only superficial reforms had been done.

The government has to tax supply chain of the agriculture sector and ask the provinces to send notices to landholders having more than 50 acres to file tax returns. At the same time, agricultural value chain, like wholesalers and middlemen, is very much in the federal domain and it should be taxed by the Centre.

In its last meeting, the Economic Advisory Council (EAC) on Saturday had asked the government to ensure maximum compliance of existing tax laws and bring agriculture income into the tax net instead of going for assets/wealth tax. Provinces would also be invited in the next meeting of the EAC to discuss the modalities as to how to bring agri income into the tax net because they would be the implementing authorities.

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