Tax Agricultural Income - TARC
Successive governments have shown a lack of political will to tax agricultural income because of the politically strong hold that agricultural lobby has over governments
THE Tax Administration Reform Commission (TARC) wants the large farmers to be taxed. The Commission observes,
Agricultural income of non-agriculturists is being increasingly used as a conduit to avoid tax and for laundering funds, resulting in leakage to the tune of crores in revenues annually. A solution could be to tax large farmers. Against a tax free limit of Rs.5 lakh on agricultural income, farmers having a high agricultural income threshold, such as Rs.50 lakhs, could be taxed. This will keep small farmers out of the purview of taxation and yet close one escape route for black money. States could pass a resolution under Article 252 of the Constitution, authorising the Centre to impose tax on agricultural income. All taxes collected by the Centre, net of collection costs, could be assigned to the states. This will broaden the taxpayer base and help mobilise additional revenue without affecting any but a very miniscule proportion of the very large farmers whose annual income exceeds the threshold limit.
For this purpose, of course, an across-the-board political consensus needs to develop, and be followed by appropriate amendments, laws and collection procedures to ensure effective implementation of such an important change. But it will certainly bring about a much improved tax culture and performance. All stakeholders need to be on board, especially representative bodies of farmers, to determine the standard parameters of expenses and receipts on production in different areas for different crops on different types of land. To do this, the existing infrastructure and human resource base of the land revenue department could be utilised. The capacity of the latter should be strengthened with proper training and infrastructure, including automating record keeping and improving transparency, to reduce fraud and forgery.
Obviously, the TARC realises that this is a fundamental structural reform proposition. Yet, successive governments have shown a lack of political will to tax agricultural income because of the politically strong hold that the agricultural lobby has over governments.