Day 32 – Q 5.There are many affluent farmers in the country who are earning in crores from modern farming. However, they are exempt from paying the income tax. What are your views on this? Shouldn’t big and affluent farmers be brought under the net of income tax? Substantiate your views.

5. There are many affluent farmers in the country who are earning in crores from modern farming. However, they are exempt from paying the income tax. What are your views on this? Shouldn’t big and affluent farmers be brought under the net of income tax? Substantiate your views.    

देश में कई संपन्न किसान हैं जो आधुनिक खेती से करोड़ों में कमा रहे हैं। हालांकि, उन्हें आयकर का भुगतान करने से छूट है। इस पर आपके क्या विचार हैं? क्या बड़े और संपन्न किसानों को आयकर के दायरे में नहीं लाया जाना चाहिए? अपने विचारों को सारगर्भित करें।

Introduction:

Comptroller and Auditor General of India (CAG) called for greater efforts to check tax evasion through claims of tax exemption on farm income in audit report of the revenue department. Earlier NITI Aayog proposed the idea to tax agricultural income beyond certain threshold. It has been remained issue of debate in India whether agricultural income should be taxed or not. 

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There is no theoretical justification for the continued exemption from the income tax of income derived from agriculture. However, there are administrative and political objections to the removal of the exemption at the present time. It is very sensitive issue as very idea of taxing agriculture income may prove political suicide for popular leadership of political party.

There is need to bring big and affluent farmers in the net of income tax as agricultural income exemption has become loophole for tax exemption and generation of black money. The exemption for agricultural incomes is benefiting rich farmers and agricultural companies, which was not the intended outcome.

• Evasion through Exemptions: Tax exemption was granted in hundreds of cases where land records were not available or proof of farm income was not available in terms of ledger account or invoices. 
• Absence of targeted benefits: In assessment year 2014-15, nine of the top 10 claimants for tax exemption of agricultural income were corporations; the 10th was a state government department.
• Money Laundering: Tax Administration Reform Commission report of 2014 points out, 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 revenue annually.
• Political courage already evident as six states currently have agricultural tax legislation on the books—Tamil Nadu, Kerala, Assam, Bihar, Odisha and West Bengal—even if implementation varies substantially, from taxes not being levied at all to being levied only upon income from plantations.
• Those who own more than 4 hectares of land form just 4% of the total agricultural households but hold over 20% of agricultural income. Just by taxing the incomes of the top 4.1% of agricultural households, at an average of 30%, as much as Rs 25,000 crore could be collected as agricultural tax.
• There is need to move beyond a reflexive rejection of the very concept of agricultural tax.

However, the road to taxing agricultural income is not easy due to various reasons such as,

• From a Constitutional standpoint, only the states are entitled to levy this tax.
• Extent of the informality that still exists in the agricultural sector, implementation of an agricultural tax would admittedly not be easy as concerns about accuracy and flexibility of crop specific prices and income with geographical variation.
• Agriculture sector is already facing crisis due to various reasons like indebtedness, uncertainty of rainfall due to climate change, pest attacks due to increasing microbial resistance  almost 2000 farmer commit suicide every year in India.
• Centre for Study of Developing Societies (CSDS), study report, “State of Indian Farmers” says that 76 per cent farmers would prefer to do some work other than farming. Sixty-one per cent of these farmers would prefer to be employed in cities because of better education, health and employment avenues.
• The very thought of taxing agriculture income could demoralise farmers and further weaken their resolve to continue subsistence farming activity as 70% of agricultural households in India have marginal holdings (under 1 hectare).
• The focus should on increasing farmer’s income rather than taxing meagre income from agriculture.  

There is need to find prudent path as India has very low tax to GDP ratio. 

• It would be to amend the definition of ‘agricultural income’ under the tax laws, and impose an appropriate monetary threshold after careful deliberation and study. Income that is not covered by this revised definition can then be subject to income tax. This would ensure that only the high-income farmers come under the purview of taxation, and the interest of small scale and mid-scale farmers is protected.
• Another alternative is for the parliament to formulate a model law for the states to adopt, with a reasonable threshold and slab rates, much like income tax, to tax agricultural income.

However, there can be no easy answer to the question of whether agriculture income should be taxed, as it would have far reaching implications, as well as technical and legal challenges.

Conclusion

It’s important to find the right balance between the taxing agricultural income and avoiding disincentivising the agriculture sector. The current focus of the government to bring farmers under the formal system by promoting digital economy is a step in the right direction.