Taxing the agricultural income.
Why: Taxing agricultural income will bring more people under the tax net. It will help in expanding the Tax Base. India being a low Tax Base country, taxing the rich farmers could be a good way to generate more revenue.
It will help in curbing tax evasion. Income from businesses, self-employment & other services rendered are shown as agricultural income.
Problems in taxing the agricultural income:
¬ Majority of the farmers in India are small farmers with marginal land-holdings. So, their income is very less & cannot be brought under tax net. Rich farmers are very less in number.
¬ Criteria for tax: it cannot be based on land-holdings because majority of farmers are dependent on rainfall for good yield. They do not have any insurance in case of crop failure. Markets do play a role in the end, even if, the yields are good. So, income in agriculture is not only the product of the land size but also the market forces & monsoon.
¬ As per the Kelkar Committee report in 2002, 95% of the farmers were below the tax bracket. So, only 5% can be taxed (*which is very less).
The way ahead:
¬ Tax slab on the lines with Income Tax can be created for agricultural incomes as well.
¬ Instead of taxing the agricultural income, it is better to provide subsidies based on the income of the farmers i.e. less subsidy or no subsidy to rich farmers.
¬ Introduction of structural changes in agriculture & allied-sector can help in raising the income of farmers by bringing them under the tax net.
With Great Love,
Er. Amit Yadav