Agricultural Income Tax

Nasim, A. (2012). Agricultural Income Taxation: Estimation of the Revenue Potential in Punjab. The Pakistan Development Review, 51(4-II), pp-321.

In this paper the author attempts to quantify the potential income tax revenue from crop farming and land rental in Punjab. The author states that in the tax year 2010, tax revenue from crop farming and land rental in Punjab was twice the tax potential for the year 2013. Furthermore, the author claims that even though the perception about agricultural income tax is exaggerated, the revenue potential is still very large relative to the actual tax collection by the provinces. Apart from being a source of revenue the author also highlights its symbolic value in terms of fairness and equity. In the past (2010-11), efforts to introduce Federal VAT and reformed GST have been opposed by political allies of the government.In this paper,the author attempts to provide estimates of revenue from taxing agricultural incomes from cultivation of land and from renting out of land for the province of Punjab for the financial year 2009-10. If the tax had been in place in 2009-10, the tax revenue from this source would have added at least another 13 percent to Punjab’s total revenue receipts.The tax is effectively a tax on land and not on income, therefore, tax as a share of income falls as agricultural income increases. The paper proposes policy changes where the land tax could be redesigned to reflect the changes in potential income from land and tackling the ineffectiveness of the tax administration.

Chaudhry, M. G., & Malik, W. (2001). Theory of Optimal Taxation and Current Tax Policy in Pakistan’s Agriculture [with Comments].The Pakistan Development Review, 489-502.

The author aims to devise a tax system for Pakistan’s agriculture that comes closest to the limited and scattered principles of optimal tax theory. This paper reviews the principles of optimal taxation as laid down in some of the key studies. The author analyzes the current system of agricultural taxation along with its limitations. Policy perceptions are given by the author to build a system of taxation that comes close to optimal taxation. Given the non conducive tax environment in Pakistan’s agriculture and the pitfalls of tax administration, the most rational agricultural policy involves two tier system comprising of a simple land tax and a tax on marketed surplus. The author suggests that tax rates should not exceed 5-6{5fae829be7f2ac2fe240ef3893666b371329fe804754bc76382cc5045395a053} of agriculture’s value added. A shift from cultivated or cropland to ownership has been advised on the basis of greater efficiency of land use and reduced administrative costs. The policy recommendations also include a proposal to do away with productive ratings that have been a source of corruption and tax evasion.