The Indian Express: Opinion: Wednesday, June 14, 2017.
The Niti
Aayog press conference a month ago, in which the taxation of agricultural
incomes was suggested, embarrassed the NDA government. When there are farmers’
agitations in many parts of the country, and talk of farm loan waivers, does
this make sense? The politics of such a move is clear, its economic aspects
were spelt out in an article by Bibek Debroy in this paper (‘12 reasons why’,
IE, May 3).
The article
made 12 points, but it missed the 13th, which follows from the 12th point. This
missed point makes the other points redundant. The 12th point stated that the
answer to an RTI application revealed that “In 2012, 8,12,426 individual tax
payers disclosed agricultural income. The average income per individual
assessee was Rs 83 crore.” So, the incomes of these individuals turn out to be
an astounding Rs 674 lakh crore. The GDP in 2012-13 was a little less than Rs
100 lakh crore.
If correct,
these individuals declared incomes that were 6.7 times the GDP: Thus, the black
economy that year was far more than Rs 574 lakh crore or 574 per cent of the
GDP. Coming from a high government official, all this cannot be doubted.
If such data
was available, demonetisation to unearth black incomes was not required.
Investigation of these eight lakh plus entities would have been enough. Why did
a billion people stand in endless queues for two months? Many people lost their
jobs, went hungry, even died in queues and so on when officials knew what to
do.
According to
data in the Income Tax Return Statistics AY 2012-13, in 2012-13, the “Number of
Effective Assessees” was 4,72,67,582. That number rose in 2014-15 to more than
5.167 crore. The categories included here were Company, Firm, HUF, Individual,
Trust and so on. However, no category called agriculture is mentioned. This is
understandable since there is no tax on such incomes. Then, how is data on
agricultural income being generated by tax authorities?
If one has
income from both agriculture and non-agriculture, then one declares the
agricultural income as well, even though one does not have to pay a tax on
that. It is just like dividend income, which, in the hands of an individual, is
free but is declared in the return. The income data from the tax department for
Assessment Year 2012-13 reveals that only 73,000 entities filed a return of
above Rs one crore and, of them, 1,600 entities filed a return of above Rs 50
crore. Only 2,600 entities paid a tax of above Rs 10 crore. So, very few from
the non-agriculture sector declared any income close to what the RTI data
reveals.
It is
conceivable that people declaring a small non-agricultural income may declare
large agricultural incomes. But then, they should be suspect and investigated
by government agencies. Since there were about eight lakh such entities,
scrutinising their accounts should not be that difficult. If these black
incomes were caught, then 200 per cent of the GDP would have accrued as tax
collection whereas today, only 5.5 per cent of the GDP is collected as direct
tax. Is this data believable? That brings one to the fourteenth and subsequent
points.
If the GDP
figures rather than the RTI ones are taken as more credible, how much income
tax can be collected from agriculture, assuming that the income distribution in
agriculture and non-agriculture are similar? There are 138.35 million
operational holdings, but how many would have taxable incomes if agriculture
were to be taxed?
The share of
agriculture and allied activities in the GDP is around 14 per cent. That would
mean a GDP contribution of about Rs 21 lakh crore out of Rs 150 lakh crore. The
net income that would be taxable would be much less.
Roughly 50
per cent of the work force is in agriculture, and a similar per cent in
non-agriculture. But the former earn only 14 per cent of the GDP while the
latter make up 86 per cent. Since India’s per capita income now is around Rs
one lakh, the average income in agriculture would be only around Rs 27,000.
From the 86
per cent of GDP contributed by non-agriculture, 5.5 per cent is collected as
direct taxes. Assuming that the distribution of income in agriculture is
similar, from the 14 per cent of GDP that this sector contributes, one can only
collect less than one per cent of GDP. But the average agricultural income is
one fourth of that of non-agriculture, so one would expect to collect only 0.27
per cent of GDP.
Adjusting for
deductions, etc., the collection may be no more than 0.1 per cent of the GDP.
Collecting this tiny bit of tax would be horrendously difficult for a variety
of reasons, including definitional and administrative ones, so that cost may
not justify the likely tax collections.
How much
would the tax collection from agriculture rise over time (called “buoyancy”)?
Not much, given that the share of agriculture in the GDP has been falling. So,
it can only contribute a declining share of taxes. The alternative would be to
collect more from the services where the bulk of black incomes are generated.
In
conclusion, while for the sake of equity, all incomes should be treated alike,
agriculture is a special case. It is not that if agricultural incomes are not
taxed, there is no tax on such incomes. Keeping agricultural prices low is also
a tax. Finally, if the 12th point is believable, eight lakh entities are
generating large black incomes; if they are tackled, neither demonetisation,
nor a tax on agriculture is needed.
(Kumar is a
retired professor of economics, Jawaharlal Nehru University and author of
‘Indian Economy since Independence: Persisting Colonial Disruption’)