Taxing Agriculture - A Detailed Review

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With recent issues raised with the term agricultural tax, following is the gist that you should be aware of.

• The NITI Aayog proposal to tax agriculture, despite the Union Finance Minister‘s clarification that the government has no such intention, has triggered a policy debate that refuses to recede.
• The shift towards commercial crops and, especially, plantations, farm houses etc., has been cited to justify taxation on agricultural income.
• 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.
• Also, sale of agricultural land is also taxable in some cases which will attract tax on capital gains on sale of such agricultural land.
• Income from allied sectors like dairy, livestock, 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.
• 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.
• 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.

“But the eventual answer to expanding the base on the personal income tax other than elimination of exemptions is also to tax the rural sector including agricultural income above a certain threshold,” Niti Aayog member Bibek Debroy said.