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The Kelkar committee recommended that the agricultural income should also be taxed and revenues collected be passed to the states. Currently, farm income is exempt from tax as it is a politically sensitive measure. Normally there should be no two opinions on the desirability of treating all sections of society on an equal basis for the purposes of levying taxes. If that were so, if others are taxed, farmers too should be taxed. Taxation of agricultural income has become imperative not only from the point of view of equity but also on considerations of revenues and the larger interest of the nation. Almost 70% of Indian population derives employment from agriculture. As agricultural income is not taxed, it implies that this 70% of the population is not paying taxes. If such a large proportion of falls outside the tax net, how can one expect the tax to GDP ratio to improve? Taxing the farmer isnt anti poor or anti farmer. A taxpaying farmer is more politically empowered, as he is contributing to national growth, and can ask for benefits in return. With the income tax bracket allowing no tax for an income of up to 1 lakh the poor farmer can rest assured that he will not be taxed. Such a move will benefit the Government as this will check the tendency of people to exaggerate their agricultural incomes to avoid income-tax. Not taxing agricultural income allows people to get away with unaccounted wealth. It was seen during last elections that almost all our politicians were crorepatis. But what amount did they pay as tax? Compared to their incomes, almost nothing!! All of them had shown their source of income as agriculture; hence they got away without paying taxes. State Governments need not impose tax on agricultural incomes directly, but can think of tapping this source of revenues somewhat indirectly. They can put in place a system of presumptive taxation for the rural rich. This can be done thus: Consumption points (that is, goods and services consumed) may be decided first, which would be indicators in this structure. For example, telephone may be considered a consumption point; cable connection for television may be another. Ownership of motorcycles, scooters and cars, credit cards, foreign and domestic travels (entailing expenditure over and above a certain minimum amount) can also be considered as consumption points. The consumption points mentioned involve some or other agencies from which the Government can collect information. The philosophy of presumptive taxation is that if a person can spend on these non-essential items, he must be first meeting his essential expenditures. Hence, an amount of total income can be estimated or presumed. The State legislatures can impose a tax on this presumed income. Even here, the State governments will not be taxing all of the taxable agricultural income. They will be taxing the income-earner actually for his consumption and not for his income per se.
If farmers were to be subjected to income tax, agriculture should be treated alike industry and agricultural income should be on par with industrial income. Is it being treated that way in this country? About 65% of Indias population still lives in the villages and agriculture and allied pursuits constitute their main occupation. Yet, agriculture accounted for a mere 17.1 % of the GDP. This is proof that the agricultural occupation is very poorly paid and farmers are poor because what they produce and sell does not fetch much price in the market. The time is not opportune to think about agricultural tax. Before that, the agricultural sector should be provided with adequate infrastructure facilities with reform measures in the sector.
Agricultural subsidies
The use of agricultural subsidies is widespread. The objectives are: to encourage adoption of improved agricultural practices for increasing agricultural production and conservation of natural resources. The subsidies are provided in the form of cash, production inputs and, more recently, as rebates on income taxes. FAVOURING STATEMENTS:
Incentives were needed for small farmers to produce enough for their households, as well as market their surpluses. Financial assistance to farmers through government-sponsored price-support programs to reduce the volatility of prices for farm products and to increase, or at least stabilize, farm income. In food-exporting countries, such as the United States and France, agricultural subsidies provided are very high and as a result they can sell agricultural products to developing nations at below market prices that has often devastating effect on the ability of farmers in those nations to prosper. Developing countries were losing their share in international market as they do not have the resources to subsidize. Subsidies are given to compensate for imbalances between the cost of production and market price. If production costs were compatible with market prices, then no subsidies would be needed. Farmers are market oriented and given a choice they would prefer to have an assured market and a "reasonable" price for their farm produce. Once introduced, subsidies to maintain prices have proved extremely difficult to end. In France, farmers have vigorously protested decreases in subsidies.
OPPOSING STATEMENTS:
Subsidies which focused on research and development, marketing and information dissemination, facilitating self-reliance and building should be there. Whatever resources have gone to agriculture, almost 80% has gone to subsidies (fertilisers, food, power, credit, etc.) and only 20% as investment. This needs to be reversed. We need to raise investments and target, rationalize and contain these subsidies. Only then Indian agriculture can grow at 4% rate of growth, and only then food production can go up in a sustained manner and food prices can be reined-in the long run. Some economists hold that Thai-style WTO-compatible subsidies to farmers for not overproducing in well-stocked years should also be considered. The absurdity of growing sugarcane in arid regions of Maharashtra, and not in Bihar and eastern UP, must end. Perverse subsidies make Maharashtra grow cane, instead of focusing on crops suited to its agro-climate. These subsidies must go. If law and order improves to a stage where it is safe to set up and operate sugar factories in Bihar, that state has the potential to be Indias sugar bowl.