A growing clamour for taxing agricultural income to shore up government revenues comes up at a time when the government is merrily providing massive tax concessions to the rich and powerful. Isn’ this like robbing Peter to pay Paul?
But why should rich farmers not be brought under the tax regime? According to IndiaSpend, farm incomes declared by tax payers in 2014, for exemption in the assessment year 2014-15, stood at Rs 9,338-crores. Even if you were to tax this income, probably not more than a third of this amount, or roughly Rs 3,000-crore could be mopped up as tax revenue. But this is not even a drop in the ocean when you compare with the Rs 17.5-lakh crore tax concessions granted to corporate in just the three year period, 2013-16, as Parliament was informed the other day.
The question that needs to be therefore asked is whether the objective of taxing agricultural income is simply to provide a smokescreen to the massive tax concessions being given to the industry each year. As per a reply given in Parliament, Rs 6.11-lakh crore of tax concessions was given in 2015-16 alone. In the past 13-years, between 2004-05 and 2016-17, the total tax concessions given to the industry, clubbed under the category of Revenue Foregone in Budget documents, exceeds a whopping Rs 55-lakh crore.
Yes, you heard it right. Rs 55-lakh crore.
When I brought this up in the TV discussion, a BJP spokesperson said that it reflected a “colonial mindset”. I wasn’t surprised, after all a similar argument was raised when the Uttar Pradesh Chief Minister Yogi Adityanath had waived Rs 36,359-crore of farm loans. While the RBI governor Urjit Patel had decried the farm loan waiver as disrupting an honest credit culture, he didn’t find any fault with the massive corporate loan waivers. The Chief Economic Advisor Arvind Subramaniam had even gone to the extent of justifying the corporate loan waiver as good economics, stating ‘this is how capitalism works’.
According to India Ratings, Rs 4-lakh crore of bad debts of corporate is expected to be written-off in near future.
The entire controversy erupted after Niti Ayog member Bibek Debroy made a strong case for bringing agriculture under the tax net with a view to increasing the resources of the state. For reasons explained above, I see no justification for taxing farm incomes unless the corporate tax concessions are not scrapped. Even the distinguished scientist-administrator Dr M S Swaminathan had questioned the move to bring agriculture under tax bracket but had agreed to taxing the rich who treat agriculture as a parking lot for black money. He tweeted to say: “There could be other methods of taxing rich farmers with multiple sources of income.”
I too agree. If some States can impose tax on certain kinds of agricultural incomes, like plantations (including tea, coffee, rubber, spices etc), I see no reason why the State governments cannot evolve some mechanism to tax farm incomes from dubious sources. But to bring the entire farm sector under tax net, making small and marginal farmers to file annual returns is simply a stupid idea.
But just imagine, at a time when Economic Survey 2016 tells us that the average income of a farm family in 17 States is a paltry Rs 20,000 a year, to even talk of income tax shows how disconnected the policy makers are from the ground realities. According to the National Crime Record Bureau, more than 3.18-lakh farmers have committed suicide in the past 21 years, and many states are grappling with the possibility of waiving outstanding farm loans on the lines of Uttar Pradesh loan waiver.
At the same time, I see no justification in allowing the multinational seed company, Monsanto India, to claim tax exemptions of Rs 94.40-crore from agricultural income. Another seed giant, Kaveri Seeds, claimed Rs 186.63-crore exemption and made a profit of Rs 215.36-crore before tax. As Bibek Debroy points out in an article: Twelve Reasons Why (Indian Express, May 3, 2017), in 2015, at least 307 individuals had reported an income exceeding Rs 1-crore per year. They certainly need to be brought under the tax net. There have also been reports of some of the well-known political leaders claiming huge returns from agriculture, which of course defies all logic, and should therefore be taxed.
I see another disturbing trend. Many bureaucrats and businessmen are buying land simply to park their unaccounted income. This trend is growing, and should be a cause for worry. My suggestion is that for the salaried class, any combined income (including from farming) shown beyond the taxable income limits should be taxed. The reason is simple. The tax exemption should be available only to those who work as full-time farmers, not to people who get regular salaries which mean they have no time for farming. Then how can they claim tax exemption for an activity they have not participated in? Similarly, for the business class, any combined income (including from agriculture) beyond the Rs 15-lakh annual limit should be brought under the tax net. The reason why I say so is the same, as before. Unless they are full-time farmers, they should not be allowed to take advantage of agriculture tax exemptions. But first, the provision to allow seed companies tax exemption under agricultural incomes should be immediately withdrawn.
Taxing the rich farmers (owning sprawling farm houses and having income from multiple sources, including agriculture) is long overdue. But this has to be accompanied by scrapping the provisions of doling out massive tax concession so the corporate. Otherwise, it will turn into a self-defeating exercise.