PM Modi's war against black money incomplete without taxing farm income

PM Modi's war against black money incomplete without taxing farm income

The Modi government's fight against black money will be rendered incomplete if the agricultural sector is not brought within its ambit.

Taxing agricultural income has always been a politically sensitive topic. This was evident last week after NITI Aayog member Bibek Debroy spoke in favour of this above a certain threshold.

The first argument in favour of such a taxation is that an exemption in the sector allows non-agricultural entities to evade taxes by declaring agriculture as their source of income. Secondly, it hardly makes sense to keep big farmers and agricultural companies out of purview of the tax department.

Third, the scale of tax exemption in the sector is such that the government will have to consider levying income tax on them.  Fourth, a uniform taxation of agricultural income across the country will eliminate the competitive disadvantage farmers of some states face due to taxes imposed by their state governments.

Finally, agriculture acts as a depressant on the tax to GDP ratio of any country due to exemptions.A major problem that arises out of any move towards agricultural taxation is that of the process. An agricultural income tax above a certain limit based on self-declaration of income will be difficult to verify due to the prevalence of cash transactions and absence of any standard book-keeping.

In order to ensure higher compliance, expenses on inputs can also be made deductible from income and depreciation subject to rebates. The key is to change the narrative around making such a move by highlighting its inherent benefits.