SIZE MATTERS HERE TOO
Sensible economics and good politics do not always go hand in hand. As an economist, Bibek Debroy was right making the suggestion that farm incomes should be taxed. Highly profitable companies and rich individuals have used the tax exemption for farm income to great advantage. In 2014-15, for example, Kaveri Seed Company showed Rs 186.6 crore as tax-exempt farm income, while Monsanto India declared tax-exempt farm income of Rs 94 crore. During demonetisation, there were apprehensions that many got away by declaring the cash they had deposited as farm income. Debroy is not the first to propose that farm incomes be taxed. Recently, two Members of Parliament raised the same issue. And chief economic advisor Arvind Subramanian has remarked that while the Centre cannot tax farm income, states can tax rich farmers as it is allowed under the Income Tax Act. (No state does it, though.)
But taxing farm income is a political hot potato. Finance minister Arun Jaitley was quick to clarify that the government had no such plan. Niti Aayog also distanced itself from Debroy’s remarks, saying it was his personal opinion. Farmers are a huge vote bank and the average farmer is pretty badly off. The government told the Supreme Court on May 2 that about 12,000 farmers commit suicide every year. Farm incomes have remained stagnant for many years. While both the prime minister and the finance minister have talked of doubling farmers’ incomes by 2022, experts see it as a very unlikely prospect.
It need not be an either/ or, though. The government could look at the loopholes in the farm income waiver to reduce misuse as a first step. Not allowing rich companies to claim tax waivers on hundreds of crores of farm income can be one step. Putting a cap on total farm income eligible for tax waiver can be another. A re-examination of rules to redefine farm income could be yet another step. Currently, even transfer of agricultural land is exempt, as is horticulture, while poultry and dairy farmers pay taxes. Poor farmers earn too little to be brought under the income tax net. But there is no reason why rich farmers should not pay.