Taxation is not applicable to Agricultural income in India. Income tax department has cited the exclusion of farmers as one of the main reasons for the low tax base. But given the politically sensitive nature of this argument, no government has ever moved towards taxing this sector.
Why tax agriculture income?
- Taxation requires regular and systematic maintenance of accounts which would further help the farmers to secure need based loans on documented records.
- Huge sum of income is rotated through farm sector and it is given the shape of agricultural income to subvert taxation.
- Inadequate or nil maintenance of accounts lead to nepotism and corruption in availing the bank credit. The poor farmer ends up at the mercy of bank officers which leads to his exploitation.
- Scarce loans forwarded to the farmer become insufficient for his needs and it forces him to show up at the doorsteps of the informal moneylenders. This leads to the start of debt trap cycle.
How tax on agriculture helps
- Verified income tax returns provide credibility to the farmer which can be used to obtain adequate loans from formal credit channels.
- Banks get easier access to reliable, valid and quantifiable data upon which the credit can be advanced without fear of default on loan.
- Adequate formal documentation would help the Government to identify the difference between small and big farmers by which the targeted subsidy schemes in future can be rolled out to benefit the needy.
- Involvement of agriculture in direct channels of taxation would improve GDP to tax ratio which would help the government to raise its revenue for more social sector spending.
- Maintenance of accounts would help the farmers to realise their revenue potential and possible migration from the primary to secondary sector of the economy, in case of decreased efficiency and revenues.
- Imposition of tax could lead to credit flowing only to big farmers as they have higher income to show.
- It would be an onerous task to admit the illiterate and ignorant small farmers into the formal direct taxation structure as they may be prone to exploitation by tax planners and officials.
The government should build a consensus across the political spectrum, given the fact that this is such a politically sensitive issue and constitutional provisions fall under the State list. India cannot afford it to end up in a logjam like in the case of Land Acquisition Bill.
The government should grab the issue by its root for the benefits of the small farmers. Experts believe that taxing agricultural income could lead to higher agricultural productivity and lower default on credit. India should be ready to bite this bullet too but with a consensual and productive approach.