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AGRICULTURAL TAX

AGRICULTURAL TAX In Pakistan, agricultural incomes have been, by and large, exempt from tax Under the constitution of 1973, the national legislature does not have the authority to tax agricultural incomes; that power was bestowed by the constitution on the provincial assemblies, in which landed interests have had a greater presence than in the national assemblyThe first serious attempt to tax agriculture was made by the administration of caretaker Prime Minister Moeen Qureshi in the summer of 1993 Qureshi’s government used the “producer index unit” (PIU) concept to estimate agricultural incomes This concept had been developed to implement the land reforms of 1959, introduced by the government of President Muhammad Ayub Khan A PIU is calculated on the basis of national productivity of land; the value of the unit of rain-fed land, therefore, is much lower than that of canalirrigated land Qureshi fixed the value of one PIU at Rs 250 ($7 at the rate of exchange prevailing in January 1993) Owners with farmland worth less than Rs 1 million ($29,000) were exempt from the tax; a “wealth tax” ranging between 05 percent and 25 percent of the value of land, as calculated in terms of PIUs, was levied on larger farms



Prime Minister Qureshi did not have to secure legislative approval to levy this tax, because all assemblies, national as well as provincial, stood dissolved while he was in office The wealth tax was instituted through a presidential ordinance, and its levy was regarded as one of the major accomplishments of the caretaker administration Under the constitution, all presidential ordinances have to be subsequently approved by the National Assembly Once the National Assembly was back in business and Prime Minister Benazir Bhutto had replaced Moeen Qureshi, the agricultural wealth tax ran into predictable political trouble It was ultimately endorsed by the national legislature but in a considerably watered-down version Accordingly, the amounts collected were embarrassingly low; for instance, in the 1994-1995 fiscal year, only Rs 25 million ($71,000) was collected An awareness of the very low ratio of tax to gross domestic product in Pakistan, and an even lower rate of taxation on agricultural incomes, allowed Pakistan to be persuaded by the International Monetary Fund (IMF), as part of the program the two sides negotiated in late 1995, to raise the value of the PIU by 60 percent, from Rs 250 to Rs 600, as a component of the budget of 1996-1997 In 1996, the World Bank added the imposition of an agriculture-tax as a condition for moving forward with its program to assist Pakistan in the modernization of the agriculture sector It is unlikely that the pressure that was being exerted by the IMF and the World Bank would have resulted in bringing incomes from agriculture into the tax structure had Prime Minister Benazir Bhutto remained in power Her dismissal, in November 1996, provided the caretaker government that held office for three months the opportunity to move in this area

Its program-although modest in scope-succeeded in extending the fiscal system to agriculture The program was endorsed by the government of Prime Minister Mian Nawaz Sharif, which came into office in February 1997 Nonetheless, the amount collected from the tax on agriculture and its proportion to total government revenues remains small

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