Daily Editorial Update with Vocabulary – Taxing agriculture

The NITI Aayog proposal to tax
agriculture, despite Union Finance Minister‘s clarification that the government
has no such intention, has triggered a policy debate that refuses to recede.

Arun Jaitley cited constitutional
limitation for the Centre to do so as agriculture is in the state list. It’s
true that under the present Constitutional assignment of tax powers in India,
taxation of agricultural income is placed within the state list. But, no state
has ever tried to levy a comprehensive tax on agricultural income given the
influence of agricultural lobby.

Should there be a tax on agricultural
income? The recent changes in agrarian economy gave further credence to the proposal to tax this
sector. The shift towards commercial crops and, especially, plantations, farm
houses etc., has been cited to justify taxation on agricultural income.

It’s also a fact that agriculture has been
a source of parking black income as it does not attract any income tax. Besides
evading tax, unaccounted income from other sources is shown under agricultural
income to avoid paying taxes. Thus, agriculture has been used as a channel to legitimise and perpetuate unaccounted income.

D P Sengupta and R Kavita Rao of National
Institute of Public Finance and Policy in an article in Economic and Political
Weekly estimated that if agricultural incomes too were treated on par with
other incomes and were made subject to income tax, it would yield potential
revenue of about Rs 50,000 crore for 2007-08.  It would be much higher now
a decade later. Hence, the clamour
for bringing agriculture into tax net.  There will be substantial revenue
for the states as agriculture is in the state list.

There is a growing presence of corporate
sector in various activities associated with this sector. There are corporate
companies reporting agricultural incomes and income from the sale of various
agricultural products.  The propagation
of contract farming is also changing the character of agricultural operations
and income from them.

Income from allied sectors like dairy,
live stock, poultry etc., is also often shown as agricultural income to evade
taxes. The share of allied sectors and other value-added activities in the
overall agricultural income is increasing.

But, this is only a part of the story. The
income from agriculture is highly inconsistent. The amplitude of fluctuation in agrarian incomes has been accentuated by the integration into
global market place. The shift towards cash crops has further intensified the
trend.

Computing agricultural income is fraught with many challenges. The fragmentation
of agricultural land holdings has led to a situation where small and marginal
farmers account for a large chunk of agrarian community.

Any income on agricultural operations that
are informal in character is prone to large-scale evasion. It requires a
massive machinery to collect and verify taxes on agricultural incomes.

The growing trend of tenancy farming
coupled with no record of rights further complicates the process of computing
agricultural incomes to arrive at taxable income.

Given the merits and demerits of
agricultural income tax, at least taxing some crops or processes can be
explored.  Higher levels of income from cash crops can also be brought
under the ambit of taxation.
Income from farm houses near urban areas should be taxed.

Word	Meaning
recede	go or move back or further away from a previous position.
credence	belief in or acceptance of something as true.
perpetuate	make (something) continue indefinitely.
legitimise	Make legal
clamour	to make a loud complaint or demand
propagation	the action of widely spreading and promoting an idea, theory, etc.
amplitude	the extent or range of a quality, property, process
accentuated	make more noticeable or prominent.
fraught	(of a situation or course of action) filled with (something undesirable).
ambit	the scope, extent, or bounds of something.

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