KARACHI, Nov 21: The issue of improving the recovery of agricultural income tax has again come into sharp focus of international donors and national institutions, as the government gears up to take up a gigantic task of rehabilitation and reconstruction after the Oct 8 earthquake.

“Even after promising $5.8 billion assistance, the donors will closely watch efforts of the Pakistan government for resource mobilization and expenditure thrift before releasing their funds,” a well-known economist associated with a private consultancy said.

Total collection of agricultural income tax is hardly Rs1 billion that is mostly from Punjab. Sindh makes an insignificant contribution, while Balochistan and the NWFP do not figure at all.

An overwhelming majority of members of Pakistan’s legislatures —- Senate, national and provincial assemblies and recently-elected district and tehsil councils -– come from the landed gentry. Taxing agriculture income is a provincial subject and remains outside the jurisdiction of Islamabad.

The International Monetary Fund in its recent staff report wants agricultural income tax made an issue of the National Finance Commission (NFC) agenda because it is a provincial subject.

Punjab is the only province that reports the collection of about Rs1 billion every year from agriculturists, but the World Bank in its recent report on “Punjab economy” is convinced that this can be raised to Rs6 billion a year.

In its budget documents, the Punjab government concedes that the collection of agricultural income tax “is stagnant for the last few years” because it is levied in the mode of a presumptive tax. The World Bank also shares this perception and wants changes in the agricultural income tax law.

The World Bank is convinced that agricultural income tax has immense untapped potential. It has asked the government to collect the tax only on the cropped area and reduce the tax threshold to 7.5 acres from 12.5 acres on irrigated land. The World Bank wants the tax rate structure to be more progressive. It recommends ‘benami transaction’ of rural lands be declared illegal under the law.

Some credit goes to Punjab for giving some observations and collection figures of the tax in the budget documents, but Sindh, Balochistan and the NWFP maintain a complete silence.

The State Bank in its recent annual report observes that agricultural income tax has received a considerable attention at the policy level but “the tax yields remain low”.

The credit for focussing on agricultural income tax at the national policy level goes to late Zulfikar Ali Bhutto who introduced it for the first time after 30 years of independence in 1977. The budget presented by Abdul Hafiz Pirzada as finance minister of the PPP government incorporates the provision of agricultural income tax. But within days after July 5 takeover, late General Ziaul Haq repealed this taxation without making any formal announcement. It was again in 1994, the agricultural income tax was levied in Sindh. The collection remains insignificant.

Sindh plans to collect Rs410 million agricultural income tax in the current fiscal year. But during the last four years when drought struck the province, the total collection from 2000-01 to 2003-04 was only Rs72.32 million. This amount was collected from small farmers. Big or influential farmers did not make any payment.

In Sindh, the recovery of tax on agricultural income has been declining. Other levies -— water tax, land tax, local cess and drainage cess — have also been falling.

As big feudals have been countering all efforts to collect tax on their incomes, their cousins in cities -— real estate operators and stock brokers — either enjoy total exemption or have found ways to circumvent these payments.

The IMF in its report for the year 2005 wants real estate operators to be brought in the tax net.