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Sunday, January 08, 2006 

Agricultural Income should be taxed

Last budget, our Finance minister suddenly realized that India’s tax to GDP ratio was very poor. Hence he found absurd ways to correct this by introducing senseless taxes, like the withdrawal tax and fringe benefit tax (FBT). For reasons only too well known, the industry did not react positively to these taxes. Rather than attacking the core areas of tax evasion and bringing a larger population under the tax net, the FM has selected to make life more difficult for those who pay taxes.

Here, I am going to make a strong plea for the FM to bring agricultural income under the tax net. 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? Critics may point out that contribution of agriculture to Indian GDP has declined to just 30%. But still the contribution is almost a third of the GDP. If a third of your GDP does not contribute to taxes, why complain about tax to GDP?

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. It is an open secret that many individuals pass off their black money as white by exaggerating their agricultural output on their land. By taxing agricultural output, PC can ensure that he cuts off an escape route for tax evaders.

Taxing the farmer isn’t anti poor or anti farmer as most politicians would like our farmers to believe. A tax paying farmer is more politically empowered, as he is contributing to national growth, and can ask for benefits in return. And 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. An additional rebate for farm produce can be extended. By introducing tax for the agricultural sector, the Finance ministry can be surer of the exact contribution of agriculture, as farm incomes will be accounted for.

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  • I'm Mayank
  • From Mumbai, Maharashtra, India
  • I just love a good conversation. You just cant keep me away from a debate. Have an opinion on almost everything, and live by the maxim, 'If it ain't broke, Dont fix it'
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