HAMID WALEED

LAHORE: Massive concealment of billions of rupees has been detected under the garb of agriculture income where influential individuals have neither declared income nor paid tax to the provincial authorities, said Federal Board of Revenue (FBR) sources.

According to the sources, low income tax, low water charge and high procurement prices add over Rs 200 billion to the incomes of large farmers therefore time is ripe to bring agriculture income into the effective tax net and agriculturists should be required to file income and wealth tax returns with effective use of the National Database and Registration Authority (NADRA) records.

The estimated additional income of big landowners due to the price support by the provincial governments is as much as Rs 90 billion, they added. According to the agricultural census of 2010, there are 13438 large land owners, representing only 0.2 percent of the total population of farmers in the country, who own over 11 percent of the farm area. The average land holding is 435 acres.

Meanwhile, former finance minister Dr Hafiz Pasha told Business Recorder that a tentative attempt was made in Punjab and Sindh to introduce the agricultural income tax in 1997 with pressure from international agencies, especially the IMF. Initially, it was levied as a presumptive tax, linked to farm size. There as an exemption to small farms up to 1 2.5 acres in size. The maximum rate of Rs 250 per acre was set for farms exceeding 25 acres. The tax was equivalent to only about 5 percent of the average net income per acre.

Subsequently, he said, the tax was linked to net income with exemption limit of Rs 100,000 in 2001. The maximum rate was set at 15 percent on income exceeding Rs 300,000. The total national yield from this tax in 2017-18 was only Rs 2 billion, equivalent to only 0.07 percent of the net income from crops in the country. Clearly, according to Dr Pasha, not only have the tax rates been set very low but also there is substantial evasion and underassessment by the Boards of Revenue. A number of studies have demonstrated that if agricultural income is treated like any other income for tax purposes the revenue yield could be much higher. IPP (2012) estimates the revenue potential for the four provinces combined as close to 0.3 percent of the GDP in 2011-12. Based on the GDP in 2017-18, the potential revenue is Rs 103 billion. As such, large and owners pay only 2 percent of their true income tax liability. Further, given the low tax rates, there is over-declaration of agricultural income and consequently, non-agricultural income is understated and thereby under-taxed. In effect, agricultural income has become a ‘tax haven’.

He said the other big advantage that large landowners enjoy is access to irrigation water at extremely low rates. The abiana, the water charge, is very low and has remained unchanged for a long time. Believe it or not, it is not even Rs 100 per acre. The O&M cost of the irrigation system is ten times as much as the revenue from the water charge. The under recovery in the province of Punjab of the cost by abiana is over Rs 15 billion. This has also encouraged the wasteful use of water at a time of emerging scarcity.