Taxation of Agriculture

• Background
• Pakistan has low tax / GDP ratio compared to neighboring countries.
In 2010, tax to GDP ratio was 10%.
• In 2010-11, fiscal deficit increased to 6.6% of GDP. Financing of fiscal
deficit has shifted towards central bank financing.
• In 2011, Government of Pakistan and Planning Commission launched
Framework for Economic Growth which aims to achieve 7% economic growth
rate in order to successfully absorb new workers.
• Pakistan’s agriculture sector employs around 45% of workforce.
• Pakistan’s agriculture sector contributes around 21% to Pakistan’s GDP,
however contribution to tax revenue is not comparable.
Background cont.…
• In recent years, the price of certain agriculture commodities has increased
which has raised rural incomes.
• Income Tax Ordinance of 2001 gave exemption for tax on income from
agriculture.
• There is a need to reduce government deficit.
• Debate over increasing government revenue through agriculture income
tax.
• Opponents of agriculture income tax argue that agriculture sector is already
taxed indirectly through pricing structure.
• Supporters of agriculture income tax argue that sector should pay fair
share.
Sources of Tax Revenue
Purpose
• Calculate terms of trade for agriculture in Pakistan
from 2000-01 to 2009-10.
• Research effect of an imposition on agriculture income tax
on Pakistan’s economy
• Determine effect on production and income
Terms of Trade Calculation Formula
Terms of Trade compares returns to a sector with payouts
made by the sector.
• In this case Terms of Trade is comparison of agriculture
sector to industrial sector.
• Laspeyre’s formula = export price index / import price
index.
• (Base period 2000-01)
Terms of Trade for Agriculture in Pakistan
Arguments In Favor Of Agriculture Tax
A. Big Landlords
B. Untaxed Black Income
C. Collusive Arrangements Of Business
D. Agriculturist Businessmen
E. Corrupt Government Employees
F. Drug Dealers
G. Fictitious Loans
H. Non Agriculture Assets Sense Of Fairness
I. Valuation Method
J. Contribution Of Agriculture Tax
K. Infrastructure Facilities
L. Subsidies
• Big Landlords
• A number of big landlords are enjoying better income and they managed to
save their lands from the land reforms by various devices. Therefore
imposition of agriculture tax is advocated.
• Untaxed Black Income
• Many traders and industrialists have purchased agricultural lands with
intention to whiten untaxed black income from business by sharing it as
agricultural income.
• Collusive Arrangements of Businessmen
• Many businessmen have entered into collusive arrangements with land
owner they obtain fictitious leases of lands from which they show
enormous amounts of agriculture income which, infact, is their business
income and thus escape as agricultural income
• Agriculture Businessmen
• A large no. of agriculturists have entered in trade and industry. The exemption of
agriculture income enables such agriculturist businessmen to evade income tax by
sharing their commercial and industrial income as agriculture income.
• Corrupt Govt. Employees
• A large no of corrupt government employees have also either purchased agricultural
land or obtained fictitious leases and are declaring the money earned by corruption as
agricultural income.
• Grug Dealers
• The drug dealers have also started making use of this loophole and are laundering
drug money by buying agricultural waste lands.
• Fictitious Loans
• Another way in which agriculturists are instrumental in helping the businessmen is to
evade their taxes through fictitious loans a businessman wanting to introduce his
own money in his books shows it as loan from agriculturists.
• Valuation Method
• Another important factor that is generally taken as an undue favor for agriculturists
is the valuation method in respect of agricultural land under the wealth tax rules.
• Contribution of Agricultural Tax
• The contribution of agriculture to total tax is about to 4% and the contribution of
agriculture to GDP is 21%. Thus, the imposition of agricultural tax is justified.
• Infrastructure Facilities
• The infrastructure facilities like roads, electricity, health centers, schools etc. have
provided by the govt. to rural population. Therefore, the agriculture sector must
contribute in the shape of agricultural taxes.
• Subsidies
• The govt. of Pakistan is providing the facility of subsidy on water, electricity,
fertilizer, pesticides and credit to facilitate the farmers. These concessions are higher
than tax burden. Therefore, the increase in taxation of agriculture sector is
advocated.
Arguments Against Agricultural Tax
a. Burdon Of Extra Taxation
b. High Cost Of Production
c. Low Per Capita Income
d. Other Taxes
e. Political Grounds
f. No Paid Market Price
g. Variation In Income
h. Black Marketing
i. Banks Loans
j. The Problems Of Small Holdings
k. Land Reforms
l. Burden Of Tax On Tenants
m. Usher
• Burden of Extra Taxation
• The agriculture sector is in really bad shape about 62 % population of Pakistan lives
in rural areas. It cannot bear the burden of extra taxation.
• High Cost of Production
• Considering the high cost of production and low support prices fixed by govt. the
average culturist is either in deficit or just exists around the subsistence level and
cannot bear the more burdens.
• Low Capita Income
• Average per capita income is not only far less than the average per capita urban
income but is also below the subsistence level. It cannot bear the burden of income
taxation.
• Political Grounds
• There is political instability in Pakistan and the agricultural tax is a provincial matter.
Therefore, the application of agricultural taxation is difficult due to political
grounds.
• No Paid Market Price
• The various corporations purchase agricultural goods at low price and the farmers
are not paid the market price of their produce. The profiteers exploit the situation
and gain abnormal profits.
• Variation in Income
• The agricultural production varies from year to year due to variations in weather
condition. Therefore, the farmers cannot get adequate return from their production
due to natural calamities.
• Black Marketing
• The basic inputs like fertilizer, seeds machinery etc. are not available to small
farmers at the subsidized rate due to black marketing.
• Burden of Tax on Tenants
• The burden of agricultural tax can be shifted to the tenants by the landlords. It will
create difficulties for them because they are already living below the subsistence
level.
• Bank Loans
• Most of the farmers are carrying on their agriculture operation with the
help of bank loans. After paying their loans with high interest rate, the
saving capacity is very low and there is no justification of agricultural tax
• Problems of Small Holdings
• Problems of small holdings due to law of inheritance. The farmers of small
holdings are not in a position to purchase land as compared to businessmen
whose business units have multiplied in a few years. Therefore, the farmers
should be exempted from agriculture tax.
• Usher
• Usher was enforced as a part of Islamiazation drive in 1982-1983 at the
rate of 5%of share of output. Therefore, the adoption of usher is also an
effective instrument of agricultural taxation.
A Slabs of total Cultivated Lands Tax Rate

A Irrigated Land
I Not exceeding 12.5 acres NIL
II Exceeding 12.5 acres but not Rs. 100/ per acre
exceeding 25 Acres
III Exceeding 25 acres but not exceeding Rs. 350/ per acre
50 Acres
IV Exceeding 50 Acres Rs. 350/ per acre

B Un-Irrigated Land
I Not exceeding 25 acres NIL
II Exceeding 25 acres but not exceeding Rs. 50/ per acre
50 Acres
III Exceeding 50 acres but not exceeding Rs. 150/ per acre
100 Acres
IV Exceeding 100 Acres Rs. 175/ per acre
C Orchards
I Irrigated Rs. 500/ per acre
II Un-Irrigated Rs. 250/ per acre
Green Revolution
 Green Revolution
 Green Revolution was based on the idea of agricultural revolution. Green
revolution infect started with the introduction of high yielding variety (HYV)
of wheat by Dr. Borlaug in 1950. Dr. Borlaug was of the view that man
should not entirely depend upon Nature for the production of agricultural
goods. Man himself should make efforts to increase agricultural output by
God.
 The technological innovations and then leave the result in the hands of
God. The technological and pesticides in evolving seeds of agricultural
output which is known as Green Revolution.
 Green Revolution thus is the break through or remarkable increase in
the quantity and quality of agricultural output through the
institutional and technological reforms
FACTORS RESPONSIBLE FOR GREEN REVOLUTION.

There are several factors which are responsible for break

through in agricultural production. These factors mutually
support each other in ushering the green revolution. The
package of factors in brief are as follows.
FACTORS RESPONSIBLE FOR GREEN REVOLUTION

 (1) MIRACLE SEEDS

The primary factor which brought agricultural revolution is the
introduction of high yielding variety, (HYV) seeds. The use of new
variety of seeds has very much increased the agricultural yields
per hectare. For example, in Pakistan, the yield of wheat was 1189
Kg per hectare in 1971- 72 and has increased to 2769 kg per
hectare in 2006-07. Similarly, the yield of price which was 1554
kg per hectare in 1971-72 which has gone up to 2107 Kg per
hectare in2006-07
 (2) Agricultural research. The agricultural
research on higher yielding plant varieties, better
methods of controlling insects and deceases have
resulted in higher production output.
 (3) Fertilizer. The increased use of chemical
fertilizer is now playing a key role in raising the
agricultural production.
 (4) Multiple cropping. Due to new seeds maturing
early, it has now become possible to get three or even
four crops instead of one or two from the same piece
of land in a year
 (5) Modern machinery. The farmers are gradually replacing the
bullocks cultivation by the modern machinery like tractors,
thrashers harvesters, tube wells etc. The time saving use of modern
machinery in agricultural sector has made it possible to sow, grow
and harvest crops in the shortest possible period of time
 (6) Support prices. The new or improved technology increases
agricultural production and reduces the cost per unit of output. In
order to sustain agricultural progress and keep the prices of
agricultural products profitable to the farmers, the government of
each country offers support prices to the growers so that agriculture
creates potential for higher real income to the producers.
(7) Processing, storage and marketing facilities. The
processing, storage and marketing facilities have been now
greatly improved and extended in almost all the countries of the
world. The increased agricultural production is put to profitable
use. The provision of these facilities brings facility in the prices of
agricultural goods and ensures reasonable return to the growers.
 (8) Credit facilities. Availability of institutional agricultural credit on
time to the farming community enables it to carry out the agricultural
operations efficiently.
 (9) Institutional changes. Green revolution is carried out more
effectively and efficiently by institutional changes like land reforms,
flow of market information etc. These are also adopted along with bio
chemical technology.
 Impact of Green Revolution
i. High Yield Verities of Seeds
ii. Use of Fertilizers
iii. Use of Machinery
iv. Leveling of Land
v. To Solve Water Problem
vi. Multiple Cropping Pattern
vii. Employment
viii.Increase in Production
i. Income Distribution
ii. Income Distribution
iii. Regional Disparities
iv. Self Sufficiency
v. Stability in Agriculture
Prices
vi. Marketing
vii. Socio-Cultural Change
viii.Economic Stability
• High Yield Verities of Seeds
• Due to green revolution high yielding varieties of the seeds have been discovered
of wheat, rice, sugarcane, cotton, maize etc. e.g. in Wheat Chenab 70, Mexi Pak,
in rice, Basmatti, Kainat, Iri Pak, Neelam in Maize, l-54 in Sugarcane etc.
• Use of Fertilizers
• The use of chemical fertilizer has increased due to green revolution. By use of the
fertilizers, the production has increased and has made more area of land cultivable
by reclamation of land the important types of fertilizer are urea. D.A.P Ammonium
Sulphate, phosphorus.
• Use of Machinery
• It was made possible the use of modern machinery in agriculture sector e.g.
tractor, harvester, threshers, tube-well, spary machines, bulldozers.
• Leveling of Land
The leveling of land is an other problem of agriculture sector. This job has been
done by the use of bulldozers, tractors and area of cultivation has increased.
• To Solve Water Problem
• The shortage of water for irrigation is an acute problem of agriculture sector
in Pakistan. This problem can be solved by the installation of tube-wells.
• Multiple Cropping Pattern
• Multiple cropping patterns has been possible due to the use of machinery
fertilizers and high yield varieties of seeds because these varieties of seed
are early maturing and therefore, their growing season can be shortened by
almost one third.
• Employment
• In certain land operations such as land preparation, seeding or transplanting,
the green revolution may have no effect on labor requirements but at the
time of harvesting thresher, multiple cropping pattern and long run rising
real wages, increasing labor requirements. The green revolution has
increase labor requirement per unit of land but has decrease labor per unit
of output.
• Increase in Production
• There is no doubt about the fact that countries, where green Revolution has
taken place the production level of these countries has increased the use of
machinery, fertilizers and high yielding varieties of seeds have a large
contribution to the total agricultural output of these countries.
• Income Distribution
• Green Revolution has increased the income level of the farmers. But a no. of
arguments are given such as imperfections in credit and distribution system.
In which the large farmers have a dominating influence, thus the rural
inequality in the distribution of income has increased in Pakistan.
• Self Sufficiency
• The green revolution is furnished with superior technology and better
agricultural inputs and the agricultural production has increased. As a result,
not only self sufficiency will be attained but surplus amount could be
exported.
• Regional Disparities
• The evidence is overwhelming that inter regional income disparities have
narrowed in the Post-Green Revolution years. In short, Green Revolution in
Pakistan seems to have been growth including and employment creating. It also
reduced inequality between income classes and regions.
• Marketing
• The govt. of Pakistan has a greater interference in agriculture marketing by
purchasing directly the surplus amount. In this way, the farmers will be able to get
reasonable prices of their products. Moreover, the ware house, and cold storage
facilities will be provided by the government. The PASSCO is doing well this job.
• Stability in agriculture prices
• The prices in agri. Goods were very low as compared to the prices of industrial
goods in 1950. by the introduction of green revolution, the government had to
announce agri. Price support policy in various agri. Products e.g. wheat, sugarcane
etc. on the other hand; the goal of price stability has also been achieved due to
increase in agricultural production
• Socio Cultural Change
• The green revolution has brought an economic, social and cultural
changes in the rural life. The increased income of farmers is spent on
the attainment of better facilities and better standard of living of
agrarian life. The social amenities are provided to the farmers.
• Economic Stability
• Due to green revolution, the agro based industries like cotton ginning,
paper mills, chipboard units, poultry farms, dairy farms, fish farming,
carpets and goat farms are established in rural areas. The agricultural
sector is revolutionized with better seeds, water and other land intakes.
In this way the total production has increased which helps in
promoting economic stability of the economy.