Budget2018 – Idea Worth Rs 25,000 Crore: Tax The Rich Farmer

When the government is hard-pressed to raise income-tax collection by bringing more people in the tax net and discouraging tax evasion, one area where it can reap a quick dividend is agricultural income.

And that too without burdening the small and marginal farmers. All farmers are not poor. Agriculture hides a diversity of land-holding and income. According to the National Sample Survey, 70% of agricultural households in India have marginal holdings (under 1 hectare), and only 0.4% hold over 10 hectares.

The proportion of agricultural households holding 4-10 hectares of land is 3.7%. By taxing the incomes of the top 4.1% of agricultural households, at an average of 30%, as much as Rs 25,000 crore could be collected as agricultural tax, according to Rajul Awasthi, Global Tax Team Lead at the World Bank.

Last year, Chief Economic Advisor Arvind Subramanian too made a case for taxing the rich farmers. “Why is it that it is very difficult to make a distinction between a poor farmer and a rich farmer-…When you say farmer, people think that you are going after the poor farmer. So what is it about political discourse that does not allow these distinctions to be made. Why can’t we say, rich regardless of where they get their income, should be taxed,” said Subramanian.

Niti Aayog, the government’s thinktank, too proposed a tax on agricultural income in its draft three-year action plan last year. Farm income could be assessed for tax as a three-year average, at a press briefing on Tuesday, making a case for widening the taxpayer base, it said.

Niti Aayog member Bibek Debroy too had said that agricultural income should be taxed at the same threshold as personal income.

However, Finance Minister Jaitley had denied that any plan was in the offing to tax agricultural income. He tweeted: “I categorically state that the Central Government has no plan to impose any tax on agriculture income. As per the Constitutional Allocation of Powers, the Central Govt has no jurisdiction to impose tax on agricultural income.”

But Subramanian had said nothing could prevent state governments from taxing agriculture income. “The constitutional restriction is on central government taxing agriculture income. There too, one could make a case that this is a choice open to 29 state governments and if there are willing takers,” he said, adding there was a need to make a clear distinction between poor and rich farmer.

However, the government has already taken note of agricultural income of non-agriculturists being used as a way to evade tax. In December 2016, then state finance minister Santosh Gangwar had revealed in Parliament that the government was verifying if taxpayers who reported farm income of over Rs 1 crore in nine years to March 2016 were genuine.

Income tax department has found an effective way to find out such tax evaders. The department accesses satellite imagery from Indian Space Research Organisation (ISRO) of the piece of land for specific time periods and if there are no standing crops in that period, it is proved that the assessee is trying to avoid taxes.

Since the government is already working to stop tax evasion through agriculture, will it also move to bring rich farmers in the tax net? Though it is a matter for the states to decide, it can make a beginning by suggesting states to consider such a tax.