Agriculture is one of
the top production sectors. It contributes a huge part in the domestic
production of developing countries. As in Pakistan agriculture has 22% of GDP.
But still it is too low. The reason is that Pakistani farmer does not have a
reason to increase his production level. He is growing as much as he requires.
A large part of the land is uncultivated. There are two reasons behind this, first
is the unreformed lands and the second is tax exemption on agricultural income.
My today’s discussion
is about the second reason, “Tax on agricultural Income”, problems and their
solutions. First of all how a tax does increases the production. It is very simple;
whenever you tax an income the earner practices some new activity to increase
his income at least up to the level before tax. So if we impose tax on
agricultural income farmer would try to increase their income to go to the
level before tax. He will either use latest technology or will cultivate the
unused area of his land. In every two cases both the income and the output will
increase. On the other hand the increase in tax revenue will result a decline
in foreign loans and budget deficits.
So many problems are
there in imposition of this tax. Lets discuss them one by one.
First
problem is a common concept is that if any kind of tax is being imposed on
agriculture it will cause “food inflation” that’s why it is tough to convince
the public. But this tax means only tax on the net income of farmer. It is just
like the taxes we receive from different industries. This tax does not affect
the price any factor of production just like Land, Water, Fertilizers and Seeds
etc. We can subsidize all of the above factors of production. So there is no chance of inflation due to the
tax on agricultural income.
The second problem is
also a common thought that farmer in Pakistan is already facing so many
problems he cannot afford any kind of tax burden. I will argument it in two
points. First, farmers are generating one fourth of the GDP it means there is
some level of production. Second, this tax should be progressive, Small on low
income and large on high income. The progressive tax puts the burden according
to the bearing capacity of a farmer.
The third problem is
the feudalism. Large areas are owned by single land lord he cultivates only the
area that his free servants (haree) cultivate only against the food provided by
the land lords for their family needs. If we impose tax on the income of the landlord
he will cultivate the area that is not being cultivated. So the both income and
the production will rise. We will go beyond 22%. He will hire more labor that
will reduce the unemployment rate. As already the largest part of the
population is directly or indirectly dependent of agriculture. Problem is that
these land lords are having a majority in parliament so they do not allow ant
tax on their income.
The fourth problem is
very genuine and real issue, “counting the agricultural income”. How would we calculate
the income a farmer? He cannot hire an accountant to calculate the net income.
We cannot find how much he spent for fertilizers (natural and artificial). How
much should be the cost of the labor as all the members work in cultivation.
How much he used the output for his family needs? Where should the output saved
as seed for future written while making accounts? The prices of agricultural
products fluctuate and changes in climate; so the income earned by the farmer
this year may be decline next year. These are the problems related to income
calculation. If we find a standardized method to calculate the income of farmer
it will be easier to tax the agricultural income.
The fifth Problem is
the tax revenue; we define the tax rates but do not make efforts to increase
the tax revenues. Pakistan has a very low tax collection, due to unreliable
system of government. A man prefers to spend his income on his own family
instead of paying it for the luxuries of rulers. If we show the proper
allocation of taxes collected we can obviously generate a large amount of the
tax that will reduce our budget deficits.
Tax on agricultural
income is being imposed in so many countries and it has shown a very positive
impact on the economy’s growth and development. Islam also appreciates the
progressive tax on agricultural income, Ushar is the best example. So if we are
interested to rise to the edge we must have to find the problem and the solve
it. We have so many ways to improve ourselves but we are not facing the problems
properly, that’s why we are not going up.
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Email: xs2shebi@ymail.com
thanx
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