why agricultural income could not be taxed in pakistan agricultural income taxation , problems of agricultural taxation., agricultural income taxation of pakistan agricultural taxation of pakistan

1. Agricultural Taxation
In PAKISTAN…

2. Why agriculture tax could
not be implemented in
Pakistan yet….!
Nimra Waseem
Qamar Abbas
Ali Iftikhar
Ramzan Razaq
Shahab Ashfaq

3. Introduction
• The agriculture sector is the ministry of Pakistan's economy. It accounts for around a
quarter of the gross domestic product and provides employment to 45% of the
population.
• Further more, it has provided much more momentum to economic growth and is
expected to continue.
• Because the rural income is growing, so the demand of taxing the agricultural income
has gained the new importance.
• Between 2001 to 2008 around 329 billion were transferred to rural areas due to high
price of major crops, how ever, in 2010 to 2011 alone 342 billion were transferred.
Now this rate has decreased.

4. • While the agricultural sector contributes to around quarter of the GDP, its
contribution to tax revenue is at 1 percent constant.
• Any move to impose agricultural income tax is
how ever, mostly opposed by Political parties,
Public representatives with agricultural
background and organizations such as farmers
associates Pakistan (FAP)
• The issue has been on table for the last decade
during the time the tax to GDP ratio has varied between 9 to 11%. Presently it is 8.9%.

5. History and legal frame work
Agricultural income is defined in the 1973 constitution (Article 260 (1))
as follows:
• “agricultural income” means agricultural income as defined for the purpose of the law
relating to income tax.
In the Income Tax Ordinance 2001,
• Any rent or revenue derived by a person from land which is situated in Pakistan and is
used for agricultural purposes
Since 1996 all four provinces have instituted some form of tax on agriculture land or
incomes. In its implementation this tax is largely a land tax rather than a tax on
agricultural income.

6. Some Basic
reasons for
why
agricultural
income cannot
be taxed in
Pakistan…!
It is very easy to say that like other sectors, income from
agriculture should also be taxed but firstly it is already taxed and
secondly its assessment and collection is very difficult and
impracticable because of many reasons e.g.
(a) It’s not possible to calculate agriculture income and tax on the
income as compared with other sectors.
(b) The performance of Income Tax department is already
unsatisfactory in already taxed sectors where they collect around 63%
of the tax collected as advance tax.
(c) It would not be possible to calculate the agri income under the
present system of tax assessment system.
(d) Income from agriculture is already taxed and collected by provinces
in two modes as under
1. Payment of Tax on the basis of ownership of Land.(fixed)
2. Payment of Tax on the basis of income from agriculture.
source
Agriculture Income Tax – “The Reality” by
(Dr. Mohammad Tariq Bucha) President Malik Khuda Bukhsh Bucha
Agriculture Foundation and Director & Chief Coordinator Farmers
Associates Pakistan (FAP)

7. Further from
the same
source
According to an Indian writer researcher, agriculture
tax in under developed countries is very difficult
because most of the transactions of income &
expenses are without receipts.
On the other hand, agriculture tax has very nominal
importance in developed countries rather it is almost
nil in developed countries
As is in under developed countries like Pakistan &
India where its contribution in GDP of the country is
24% & 15% respectively. A figure often discussed &
quoted in media and the economic policies

8. Land revenue rates under Punjab
agricultural income tax act 1997
Land ownership tax
Up to 12.5 acre No tax
12.5 to 25 acre Rs 100/ acre
16 to 50 acre Rs 250/ acre
50 acre or more Rs 300/acre
For the next fiscal year, the government set the target of Rs2.01 billion for the agriculture income tax

9. Amendments As per the major amendments
introduced to this Act in 2001,
holders of 25 acres of irrigated
land (equivalent to 50 acres of un-
irrigated land) were required to
submit their AIT return
• Despite an
announcement last year,
the income-mode of the
tax was, however, not
practically implemented
due to capacity related
issues of the collectors in
the field
• The collection from this
tax has been declining in
recent times, according
to the new budget
document.

10. Failure of
provincial tax
collection system
• Sarfraz Khan, former member Federal Board of
Revenue (FBR) and central leader of Kissan Board
Pakistan, said the department concerned has
badly failed in engaging farming community on
this vital issue. The farmers were not taken into
confidence at the time of the formulation of the
new mechanism of agricultural income tax
collection.
• Khan said that provincial machinery was also not
capable to audit and assess taxable areas of the
agriculture sector. The biggest issue is capacity as
well as will of the people concerned, he observed
Source
http://www.thenews.com.pk/Todays-News-3-
256010-Punjab-misses-agriculture-income-tax-
target

11. Provincial agriculture tax in million Pk rupee
2011 to 2012
Punjab 670
Sindh 189
Khyber pakhtun khwa 20
Baluchistan 1
total 880
Total provincial revenues 0.13
Total tax revenue 0.08

12. Agriculture Land Ownership in Pakistan
(As per Agriculture Statistics 2000)
source Agriculture Income Tax – “The Reality” by
(Dr. Mohammad Tariq Bucha) President Malik Khuda Bukhsh Bucha Agriculture Foundation and Director & Chief Coordinator Farmers Associates
Pakistan (FAP)
Land Ownership Less than 5 acre
(%)
5 to 25 acres (%) 25 to 50 acres (%) 50 acres and plus
(%)
Pakistan 61.00 33.00 4.00 2.00
Punjab 61.34 34.00 3.40 1.40
Sindh 42.50 46.00 7.70 4.10
KP 79.00 18.00 1.70 1.16
Balochistan 30.00 52.00 10.70 8.00

13. AGRICULTURE INCOME TAX , THE DEBATE
ARGUMENTS IN FAVOR OF AGRI INCOME TAX
FIRSTLY
• The present economic situation of Pakistan requires for the government to raise the
revenues in order to lift the tax to GDP ratio and in order t meet the revenue and fiscal
targets.
• In order to improve the low growth rate and high
inflation funds should be raised.
SECONDLY
• There has been a structural shift of incomes towards
untaxed sectors which requires the broadening of the
tax base. Because rural incomes have been rising, a
window is now open to tax farm incomes to fund
Development

14. Further
Thirdly
Agricultural tax can be made
progressive. I-e, those who earn more
pay more. This is tied to the fact that
many rich land lords do not significantly
contribute to the tax revenue.
Fourthly
Agriculture should not be given special
treatment as the exemption from income
tax for this sector is not supportable on the
grounds of equity.

15. Further more
FIFTHLY
Discrimination against the agricultural
sector through the imposition of low
prices has diminished in the past decade
and now the sector has untaxed potential
because of the decline of the implicit
taxation.
SIXTHLY
• Cultivation intensity has been growing
inversely with the farm size in
Pakistan.
• As the farm side increases the
efficiency with which it is cultivated
decreases
• There fore the higher tax rate on
larger farms will give more output
from landlords.

16. ARGUMENT AGANST AGRICULTURE TAX
These include
• Agricultural income is already taxed by provincial agricultural income tax ordinance
• Rich landlords are not in majority and there for the revenue potential from the sector is
not as high as claimed.
• The agriculture income tax will only burden
the poor farmers and in return effect the
performance of the entire sector

17. Further
• The percentage of larger land holdings has decreased due to inheritance law, conversion
of agricultural land into residential colonies between 1970 to 1990
• Collecting direct taxes on agricultural income is a complex tax that is too difficult for the
developing countries to administer.
• In addition to current direct taxation the agriculture is also paying indirect and implicit
taxes.
Land
ownership
Less than 5
acres
5 to 12.5
acres
12.5 to 25
acres
25 to 50
acres
50 acres and
over
90.73 7.4 1.2 0.28 0.05

18. Who Bears
the Burden of
Taxes!
The case for treating farm
incomes as business incomes
for tax purposes is made on
the ground that the differential
treatment of agricultural
incomes violates the principle
of horizontal equity – equal
incomes should be treated
equally, and on the ground
that by excluding agricultural
incomes from taxation, a very
large segment of the earning
households are excluded from
the application of the principle
of vertical equity

19. Options for Agricultural Taxation
Taxation of agriculture incomes can takes place in a number of ways
• One of the earliest papers on agricultural taxation in Pakistan is by Hamid (1970) as,
Taxation Based on Land Area
• land taxes have a particular appeal because of their simplicity and presumed
efficiency. Land taxes can be levied either with or without reference to the
Annual Rental Value and Site Value Taxes
• Taxes on pure rental income and site value are efficient taxes because they only take
away some, and in the extreme case all, of the landowners’ rental income without
affecting the supply of land or the level of output
• The capitalized value of the rental value of land is the site value of land.

20. Presumptive Income Taxes
• For the near future the tax will be some form of presumptive income tax that focuses
only on crop
• A presumptive income tax would involve
estimating Gross Value of Output (GVO), subtracting
an estimate of cost of production (COP) and then
applying a tax according to a tax schedule that is
applicable to businesses in other sectors of the
economy.
Value Added Tax
• A comprehensive value added tax (VAT) can be designed in a way that the tax is
effectively a tax on all consumption , irrespective of the source of income.

21. Taxing Agricultural
Output and Inputs
• Distortionary taxation of outputs
and inputs may also be desirable
because of administrative
difficulties in implementing
efficient taxes such as land-based
taxes.
• The efficiency of land taxes may
not hold in the presence of
imperfect insurance markets so
output taxes or a combination of
output and land taxes may be
preferred to pure land taxes

22. FORMING
THE IDEAL
TAX POLICY IT IS CLEAR THAT CURRENT TAXATION
POLICY REQUIRES REFORMATION
In order to resolve the conflicting claims
about the potential of the agriculture sector
an expert panel consisting of economist
specialization in taxation must be consulted
in order to gain an accurate depiction.

23. Conclusion
 The major conclusion drawn is that the current system of taxing the
agricultural income is an inefficient and inequitable setup and that some
frame of reforms in tax policy is necessary
 Basically the tax could not be implemented because of its implemental
structure is not much easy to apply in developing countries
 Rich land lords always oppose any such bill or suggestion and the poor
farmers are unable to pay the tax as they own little.

24. Sources
Income Taxation Estimation of the Revenue
Potential in Punjab Anjum Nasim 10/14/2012
www.pildat.org Taxing the agricultural income in
November 2011
Agriculture Income Tax – “The Reality” by
(Dr. Mohammad Tariq Bucha) President Malik
Khuda Bukhsh Bucha Agriculture Foundation and
Director & Chief Coordinator Farmers Associates
Pakistan (FAP)
http://www.thenews.com.pk/Todays-News-3-
256010-Punjab-misses-agriculture-income-tax-
target

25. Thank
you for
you time