It is time to tax agricultural income

22 February, 2013

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Farmers have paid tax to the kings from time immemorial. History shows that all subjects paid about one fourth of their produce to kings. So it is not understandable as to why agriculturists and those who are engaged in agro-based industries should not pay income tax.

All persons, irrespective of whether they live in urban or rural areas, need the government to carry out development of the infrastructure like roads, irrigation systems, electric power, and a host of other facilities. They need the police, judiciary, the country’s defense forces and many other government facilities like education and health services. They want loan facilities, subsidies and procurement of their produce at remunerative support prices. They want to be compensated for destruction of crops due to natural c But, they are not willing to pay for these services. Do they give anything for free? Then why should they feel that they should get all services free of cost. Why should the revenue earned by the government in the form of income tax in urban areas be spent for the development of rural areas?

It is illogical to exempt agricultural income from income tax. Tax holidays for development of backward areas are understandable. But the agriculturists have enjoyed tax holiday for sixty five years. Hence this tax holiday must end. All individuals or companies who are engaged in agro-based industries will be required to pay income tax.

Tax Liability

The slabs and rates of income tax payable by individuals and companies engaged in agriculture, horticulture or agro-based industries should be the same as for other individuals and companies. An expert body should be set up to work out a method of assessing income and develop a ‘form’ on which the tax return is to be submitted. This expert body should submit its recommendation within three months and the government orders should be issued within six months.

Interim Rates of Payment

Till the government works out the system of assessing the income and develops a ‘form’ on which the return is to be submitted, an interim system as given below shall operate. All individuals who have more than 20 acres of irrigated land or more than five acres under sugarcane or three acres under grape cultivation or who have constructed a cement concrete house of more than 100 square meters or are in possession of private cars or jeeps will pay an ad hoc advance tax of Rs. 1500 for the current financial year. This amount will be paid by 15th September.

All companies engaged in agro-based industries of any kind including dairy, floriculture, plantations etc. will pay an adhoc income tax equivalent to one per cent of the turnover. This amount will be paid by 15th September.

Exemptions

All agro-based industries will be allowed a tax holiday for a period of seven years from their incorporation. In case of plantations, they will be allowed a tax holiday of 25 years. During this period, they will pay only one percent of their sale as tax. All individuals who are starting new cultivation of grapes or any fruit orchard should be granted exemption for the particular area for a period of seven years.

Conclusion

People and legislators of all parties will protest. They have vested interests to protect. Delegations of farmers will come to discuss the issue of tax on agriculture. They will point out that the life of a farmer was very difficult. The production was unpredictable and depended on rainfall. The farmers were not getting remunerative prices for their produce and were unable to make a proper living. They need to be explained that only those who earned more than Rs. 200,000 per year were required to pay tax. So as far as the small and marginal farmers were concerned, they would still not be required to pay tax. As far as the rich farmers were concerned the story was different. If agriculture was un-remunerative, how could they afford to build palatial houses, buy cars costing over Rs. 10 lakhs, have all modern amenities and have fat bank balances?

A government officer living honestly required a life time to buy a house and a car. Yet he paid income tax. So why should the rich farmers who earned adequately not pay tax? Taxing agriculture will also stop rich individuals and companies showing agricultural income and thus laundering their black money and cash earnings. This will also boost government revenues. No company or individual ever stopped earning because they would have to pay tax. They will always try to hide their real incomes if they can and try to pay less tax.

Our government cannot run effectively without increasing revenues. One simple and effective way is to tax agriculture. These holy cows have had a great time at our cost for the last sixty five years. It is time we milked them.