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Agricultural income should be taxed

The Kelkar committee recommended that the agricultural income should also be taxed and revenues collected be passed to the states. Currently, farm income is exempt from tax as it is a politically sensitive measure. Normally there should be no two opinions on the desirability of treating all sections of society on an equal basis for the purposes of levying taxes. If that were so, if others are taxed, farmers too should be taxed. Taxation of agricultural income has become imperative not only from the point of view of equity but also on considerations of revenues and the larger interest of the nation. Almost 70% of Indian population derives employment from agriculture. As agricultural income is not taxed, it implies that this 70% of the population is not paying taxes. If such a large proportion of falls outside the tax net, how can one expect the tax to GDP ratio to improve? Taxing the farmer isnt anti poor or anti farmer. A taxpaying farmer is more politically empowered, as he is contributing to national growth, and can ask for benefits in return. With the income tax bracket allowing no tax for an income of up to 1 lakh the poor farmer can rest assured that he will not be taxed. Such a move will benefit the Government as this will check the tendency of people to exaggerate their agricultural incomes to avoid income-tax. Not taxing agricultural income allows people to get away with unaccounted wealth. It was seen during last elections that almost all our politicians were crorepatis. But what amount did they pay as tax? Compared to their incomes, almost nothing!! All of them had shown their source of income as agriculture; hence they got away without paying taxes. State Governments need not impose tax on agricultural incomes directly, but can think of tapping this source of revenues somewhat indirectly. They can put in place a system of presumptive taxation for the rural rich. This can be done thus: Consumption points (that is, goods and services consumed) may be decided first, which would be indicators in this structure. For example, telephone may be considered a consumption point; cable connection for television may be another. Ownership of motorcycles, scooters and cars, credit cards, foreign and domestic travels (entailing expenditure over and above a certain minimum amount) can also be considered as consumption points. The consumption points mentioned involve some or other agencies from which the Government can collect information. The philosophy of presumptive taxation is that if a person can spend on these non-essential items, he must be first meeting his essential expenditures. Hence, an amount of total income can be estimated or presumed. The State legislatures can impose a tax on this presumed income. Even here, the State governments will not be taxing all of the taxable agricultural income. They will be taxing the income-earner actually for his consumption and not for his income per se.

Agricultural income should not be taxed:

If farmers were to be subjected to income tax, agriculture should be treated alike industry and agricultural income should be on par with industrial income. Is it being treated that way in this country? About 65% of Indias population still lives in the villages and agriculture and allied pursuits constitute their main occupation. Yet, agriculture accounted for a mere 17.1 % of the GDP. This is proof that the agricultural occupation is very poorly paid and farmers are poor because what they produce and sell does not fetch much price in the market. The time is not opportune to think about agricultural tax. Before that, the agricultural sector should be provided with adequate infrastructure facilities with reform measures in the sector.

Agricultural subsidies
The use of agricultural subsidies is widespread. The objectives are: to encourage adoption of improved agricultural practices for increasing agricultural production and conservation of natural resources. The subsidies are provided in the form of cash, production inputs and, more recently, as rebates on income taxes. FAVOURING STATEMENTS:

Incentives were needed for small farmers to produce enough for their households, as well as market their surpluses. Financial assistance to farmers through government-sponsored price-support programs to reduce the volatility of prices for farm products and to increase, or at least stabilize, farm income. In food-exporting countries, such as the United States and France, agricultural subsidies provided are very high and as a result they can sell agricultural products to developing nations at below market prices that has often devastating effect on the ability of farmers in those nations to prosper. Developing countries were losing their share in international market as they do not have the resources to subsidize. Subsidies are given to compensate for imbalances between the cost of production and market price. If production costs were compatible with market prices, then no subsidies would be needed. Farmers are market oriented and given a choice they would prefer to have an assured market and a "reasonable" price for their farm produce. Once introduced, subsidies to maintain prices have proved extremely difficult to end. In France, farmers have vigorously protested decreases in subsidies.


Subsidies which focused on research and development, marketing and information dissemination, facilitating self-reliance and building should be there. Whatever resources have gone to agriculture, almost 80% has gone to subsidies (fertilisers, food, power, credit, etc.) and only 20% as investment. This needs to be reversed. We need to raise investments and target, rationalize and contain these subsidies. Only then Indian agriculture can grow at 4% rate of growth, and only then food production can go up in a sustained manner and food prices can be reined-in the long run. Some economists hold that Thai-style WTO-compatible subsidies to farmers for not overproducing in well-stocked years should also be considered. The absurdity of growing sugarcane in arid regions of Maharashtra, and not in Bihar and eastern UP, must end. Perverse subsidies make Maharashtra grow cane, instead of focusing on crops suited to its agro-climate. These subsidies must go. If law and order improves to a stage where it is safe to set up and operate sugar factories in Bihar, that state has the potential to be Indias sugar bowl.

Farm subsidy touches record high in rich nations

For 2009, farm support (popularly understood as agricultural subsidy) of developed countries stood at an estimated $383.7 billion, up from $379.4 billion in 2008. The OECD is a forum of 31 developed/ industrialised countries in which agriculture is on a large commercial scale and mechanised. In many cases, less than 5 % of the population is engaged in farming. An important element of OECD farm programmes is support for general services to agriculture' which includes expenditure on research, infrastructure, inspection and control as well as marketing and promotion. This support has been rising regularly. For 2009, it touched a new high of $93.5 billion, up from $85.8 billion in 2008. For India, too, these are critical areas that cry for policy attention, budgetary support and faithful implementation of schemes.

WTO calls on US to cut farm subsidies (29 September 2010)

The World Trade Organization called on the United States to cut its farm subsidies, saying that they were so considerable that they could affect market prices. The WTO noted that support granted to the sector under the multi-billion-dollar 2008 Farm Act are mostly linked to prices and or production. Agriculture accounts for only 0.8 % of US GDP and it employs just 1.4 % of its labour force. Most of the subsidies are concentrated on crops such as cotton soybeans and rice. When prices drop, those subsidies will be in place again precisely at the moment when they will provoke the largest distortions and most damage to producers elsewhere.

Yet another pro-farmer budget! (04 March 2010)

Rarely mentioned are the massive subsidies, now larger than ever before, for the corporate sector. This year alone, the budget gifts over Rs.500, 000 crores in write-offs, direct and indirect, to the Big Boys. That's Rs.57 crores every single hour on average - almost a crore a minute. Beating last year's Rs.30 crores an hour by more than 70 per cent. There is still an air of self-congratulation on the Rs. 70,000-crore farm loan waiver of 2008. A one-off waiver that comes once in so many decades. Yet revenue foregone in this budget in direct tax concessions to corporate tax payers is close to Rs. 80,000 crores. It was over Rs.66, 000 crores last year and Rs.62, 000 crores the year before that. In all, Rs. 2, 08,000 crores of direct freebies in 36 months. Consider that this loot-and-grab sortie has been on for two decades now. It means that in direct tax freebies alone the corporate sector has had the equivalent of some 15 'farm loan waivers' since 1991. Then there's the indirect stuff. In this year's budget: Revenue foregone in excise duty - Rs.170, 765 crores. Customs duty - Rs.249, 021 crores. Together with the Rs.80, 000 crores in direct write-offs, the total nears Rs.500, 000 crores. More and more of "agricultural" credit will go not to farmers but corporations. Indeed, "even External Commercial Borrowings will henceforth be available for cold storage or cold room facility. Several of the loans disbursed as "agricultural credit" are in excess of Rs. 10 crore and even Rs. 25 crore. And even as loans of this size steadily grew in number between 2000 and 2006, agricultural loans of less than Rs. 25,000 fell by more than half in the same period.