little agriculture tax or uneven tax ratio

Uneven tax ratio
Computerisation of land record in Peshawar and other districts is the need of the hour

By Tahir Ali

Though agriculture accounts for nearly a quarter of Pakistan’s and Khyber Pakhtunkhwa’s gross domestic product, the collection of taxes from the sector has been negligible — just 0.11 per cent of KP provincial revenue receipts (PORs) last year.

Revenue is collected from agriculture in KP through some direct taxes -Land Revenue (water tax or Abiana), agriculture income tax (AIT) and Land tax (LT) –and non tax heads (user charges).

KP achieved the AIT/LT target of Rs21mn last fiscal and target for this year is Rs22mn. With a collection of Rs915mn in 2011, Land Revenue (LR) or water tax, one of the major direct taxes in KP, is the second biggest single contributor to provincial kitty after motor vehicle tax.

Last fiscal, agriculture and its related sectors also accounted for 2.6 per cent of the total Rs6.34bn non-tax provincial revenues.

Taxes from AIT were Rs19.7mn in 2007 which came down to Rs17.3mn in 2008 and to Rs15.7mn in 2009 but rose to Rs17.5mn in 2010.

The budget whitepaper informs that AIT’s share was just 0.11 per cent in PORs of Rs18.91bn and 1.5 per cent in the direct taxes of Rs1.4bn in last fiscal year. AIT’s share in PORs has been on the decline as it was 1.2 per cent in 2004-05 which came down to 0.41 per cent in 2005 and 2006 and to 0.37, 0.31, 0.24 and 0.19 per cent in the next four years.

AIT/LT are collected by the Revenue and Estates department through the patwaris while Land Revenue (LR) is collected by the irrigation department from the farmers in return for the irrigation water provided to them from canals, public tube-wells or other sources.

Under the 2001 ordinance, AIT is collected from the owner, mortgagee or lessee or the tenants and levied on income from ‘cultivated land — the net area sown, actually matured and harvested during a tax year, regardless of the number of crops raised, including area under matured orchards.

There is no exemption for the AIT and LR. However, 5 acres or less of agriculture land under crops or orchards was earlier exempted from LT in 2005. This limit has recently been increased to 12.5 acres.

Under the law, AIT would be 5 per cent if taxable income is less than Rs0.1mn. And if the income exceeds          Rs0.1mn but not Rs0.2mn, AIT would be Rs5000 plus 7.5 per cent of the amount exceeding Rs0.1mn. If the income is over Rs0.2mn but less than Rs0.3mn AIT would be Rs12500 plus10 per cent of the amount exceeding Rs0.2mn. And if taxable income exceeds Rs0.3mn, Rs22500 plus 15 per cent of the amount exceeding Rs0.3mn would be taken as AIT, provided that no tax shall be payable on the first 80,000 rupees of the aforementioned income in all the cases.

LT is collected at a fixed rate of Rs72 per acre over and above the exempted 12/5 acres of land under crops and Rs300/acre for orchards.

LR is Rs200/acre for cereal crops and around Rs250 for other crops this year as compared to Rs250/acre and over Rs300/acre for these crops respectively last year.

The province should have collected huge sums in AIT/LT if one goes by the slabs prescribed by the agriculture income tax/land tax ordinance of 2001 but for snags like malpractices in the tax collection machinery and tax evasion by the powerful landed aristocracy.

According to a report, there were around 28000 landlords holding over five acres of land, but only 100 were registered as AIT payers.

Several farmers admitted the net annual income from one acre of irrigated land and arid land is estimated at around Rs0.1mn and Rs0.05mn. With around 4.5mn acres of cultivated land in KP, income from the AIT/LT should have been dozens of billions even if we take the first slab as benchmark. 

While Rs46.93mn were collected as AIT/LT in 2004, these came down to Rs18mn next year. An official said the income from land tax/AIT came down from 2004 onward as the government exempted 5 acres or less land from land tax as tax payers decreased.

But even if the number of taxpayers came down, AIT should have gone up in wake of rising farm incomes for increased support prices and rising cereal and fruit/vegetable prices.

On the contrary, though per acre rate of LR or water tax has been decreased, its collection has been on the rise making it the second biggest single contributor to provincial economy after motor vehicle tax.

Land revenue receipts were Rs573mn and Rs572mn in 2008 and 2009. In 2010, it rose to Rs771mn and was recorded at Rs915mn in 2011. It has been fixed at Rs920mn for FY2012-13.

The targets for the AIT have always been fixed unrealistically ignoring several factors — the issue of terrorism and resultant exemptions given to farmers, the lack of enthusiasm on the part of taxpayers, lack of political will on the part of government to tax the sector, capacity constraints and corruption of the tax collection machinery and political pressure on tax-collectors and so on.

The AIT/LT targets, resultantly, are missed. For example Rs90mn was set the target for AIT in 2008 and 2009 but actually recovery was only Rs18mn and Rs17.4mn respectively. Farmers say big landlords hardly contribute any taxes while the poor small farmers are subjected to unjust AIT/LT.

“For the absence of any reliable computerised system for the assessment and determination of expected agriculture income each year and the lack of a sound computerised database of all landowners in the province, the AIT is left at the discretion of patwari. He can claim any amount from a landowner/farmer and the later in turn has to pay it or bribe him. Patwari after all can hardly be displeased as he has great nuisance value; he can damage property record, lodge complaint against you in revenue court etc,” said a farmer, wishing anonymity.

During an assembly session last month, members from treasury and opposition also severely criticised the patwaris.

According to farmer leader Niamat Shah Roghani, “Patwaris lack the power to make the powerful landlords pay the taxes.

“The problem will be there unless the land in the province is reassessed, land record is computerised, an unquestionable database of landholders, their normal incomes and AIT payers is prepared and the patwari discretionary role is minimised in the system,” he argued.

Farmers also complained there was no formula as to how the difference in the production, seeds, water, and hard-work employed thereon and the weather effects are to be taken into consideration for fixing land tax.

The provincial board of revenue needs to provide basic training to revenue officials on computing farm incomes on the basis of returns filed by growers.

KP revenue minister Mohammad Shuja Khan last month informed KP assembly that computerisation of land settlement record in Peshawar district was at hand and would be followed in seven other districts. Under the new policy, powers of patwaris were also being curtailed, he assured.


About Tahir Ali Khan (Official)
I am an academic, columnist, and a social worker.

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