In an unlawful move that is also in
violation of a Supreme Court judgment, the Punjab government has stopped
collection of the income-based component of agriculture tax through an
executive order.
In a move apparently made under pressure exerted by big
landlords and politicians, in addition to being contrary to the government’s
claim of looking to expand the tax net, the authorities called for a
provisional suspension of income-based tax collection from the agriculture
sector.
“The income-based assessment and collection of Agriculture
Income Tax under Second Schedule of the Punjab Agricultural Income Tax Act,
1997, should be withheld till further orders,” according to the notification
issued by the Punjab Board of Revenue in October last year.
The move puts a question mark over the authority of the
Punjab chief minister who has succumbed to the pressure exerted by various
lobbies. Against an estimated potential of Rs200 billion, the Punjab government
collected a mere Rs1.6 billion in agriculture income tax in the last fiscal
year 2015-16.
The provincial government was collecting two types of
taxes from agriculture – income-based and land-based. The land-based collection
of tax would continue, according to the notification.
The share of agriculture in the economy is about one-fifth
but its share in total revenue is less than 1%, underscoring huge tax evasion
in the sector. In the previous fiscal year 2015-16, Punjab received Rs901
billion from the centre as its share in federal taxes while generated a meagre
sum of Rs143 billion through its own efforts, according to the Ministry of
Finance.
Punjab Finance Minister Dr Ayesha Ghaus
Pasha confirmed to The Express Tribune that
the income-based agriculture income tax has been temporarily suspended.
The Punjab government took the decision during a meeting,
chaired by Provincial Minister for Law & Parliamentary Affairs.
However, legal and tax experts termed the move unlawful and
in violation of the Supreme Court judgment that binds the federal and
provincial governments to take decisions on fiscal matters with prior approval
of the respective cabinets.
The provincial government cannot suspend the Agriculture
Income Tax through an executive order, said Dr Ikram ul Haq, a Supreme Court
lawyer and an expert on tax matters. He said that after historical judgment of
the apex court, the tax collection cannot be suspended even through a Governor
Order. “It is a mockery of the law and the provincial government has gone
way too far,” said Haq.
Background
In 2013, the Federal Board of Revenue (FBR) introduced an
amendment in Section 111 of the Income Tax Ordinance 2001. The amendment was
aimed at cracking down on those who evade income tax by hiding behind
agriculture income.
Under the Constitution of Pakistan, income from
agriculture is a provincial subject – a lacuna that almost every influential
landlord and industrialist exploits to evade taxes by claiming income from the
land.
According to the 2013 amendment, money or valuable article
owned or funds from which the expenditure was made, by way of agricultural
income, such explanation shall be accepted to the extent of agricultural income
worked back on the basis of agricultural income tax paid under the relevant
provincial law.
Sources said that after this amendment, all the big
landlords came on the radar of the tax authorities, either provincial or
federal. Even the income of an important member of the ruling family came under
question, the sources added.
The authorities served tax notices on big landlords and
many of them went to Lahore High Court and sought relief.
These people started pressurising the provincial
government that, like the other three provinces, the Punjab government should
only charge land-based agriculture income tax. The sources said that now the
provincial government was working on a legal amendment that it wants to
introduce retrospectively.
The amendment, which will be enforced either through an
ordinance or through next budget, would nullify all the tax assessments made
against these influential people in the past.
Punjab government’s version
The agriculture sector is passing through difficult times
and the provincial government is trying to revive this important sector by
providing it various incentives like subsidies and relaxation in taxation, said
Pasha. She said that at the time of revival of the sector, the provincial
government temporarily suspended income-based tax. She said that the provincial
government also needed some time to put in place proper mechanisms for actual
assessment of the incomes generated from the agriculture sector.
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