The Punjab government has taken the decision of suspending the income tax on the agricultural sector during a meeting, chaired by Provincial Minister for Law & Parliamentary Affairs. The move is considered unlawful as it violates orders of the Supreme Court judgment that binds the federal and provincial governments to take decisions on fiscal matters with prior approval of the respective cabinets. It has also dealt a blow to the government’s recent efforts and initiative of expanding the tax net for better tax revenue collection.
The provincial government cannot suspend the Agriculture Income Tax through an executive order, said Dr Ikram ul Haq, a Supreme Court lawyer and an expert on tax matters. He further briefed that after the historical judgment of the apex court, the tax collection cannot be suspended even through a Governor Order. “It is a mockery of the law and the provincial government has gone way too far,” said Haq.
“The income-based assessment and collection of Agriculture Income Tax under Second Schedule of the Punjab Agricultural Income Tax Act, 1997, should be withheld till further orders,” according to the notification issued by the Punjab Board of Revenue in October last year.
The decision was taken by the Punjab chief minister who appears to have succumbed to the pressure exerted by various influential lobbies such as landlords and politicians. The move will further pull down tax revenue collection. Against an estimated potential of Rs200 billion, the Punjab government merely collected Rs1.6 billion in agriculture income tax during the last fiscal year 2015-16.
The provincial government was collecting two types of taxes from agriculture – income-based and land-based. The land-based collection of the tax would continue, according to the notification.
The share of agriculture in the economy is about one-fifth but its share in total revenue is less than 1%, depicting huge tax evasion in the sector. In the previous fiscal year 2015-16, Punjab received Rs901 billion from the centre as its share in federal taxes while generated a meagre sum of Rs143 billion through its own efforts, according to the Ministry of Finance.
However the Punjab government is of the view that the agriculture sector is passing through difficult times and the provincial government is trying to revive this important sector by providing it various incentives like subsidies and relaxation in taxation, said Pasha. She said that at the time of the revival of the sector, the provincial government temporarily suspended income-based tax. She said that the provincial government also needed some time to put in place proper mechanisms for actual assessment of the incomes generated from the agriculture sector.
