New Delhi: Contrary to the repeated assertions of the Finance Minister Arun Jaitely that the farm income could not be taxed, the NITI Aayog on Tuesday made a bold pitch to tax agricultural income above a certain threshold in a bid to deal with cases of “tax avoidance”.
Speaking on the chapter of expanding tax base in the draft “Three Years Action Plan”, the NITI Aayog Member Bibek Debroy said: “There are roughly 225 million households in the country out of which two-third are in the rural areas, which are almost out of the tax net. The remaining 37.5 million households in the urban areas fall in the tax net, which also include half of them below the exemption limit. Thus, we are faced with a scenario of low base and personal income tax exemptions. While the government is dealing with the issue of tax evasion, what we have to face up to is the tax avoidance and for that I think the distinction between the urban and rural should go.”
Debroy argued that the agricultural income above a certain threshold, which could be the same as in the case of personal income tax, should be taxed. “The threshold agricultural income could be arrived at by taking the average of three or five years’ of income of farmers by taking into account the income fluctuations,” Debroy added. However, Debroy did not elaborate on the roadmap to tax the agricultural income. The vice-chairman of the NITI Aayog Arvind Panagaria also did not comment on Debroy’s assertions on taxing agricultural income. It may be recalled that the Finance Minister just recently during the Budget session of Parliament had ruled out the prospects of taxing the agricultural income, while stating that it’s beyond the legislative mandate of the government.
However, Debroy dropped hints that the taxing of agricultural income could be part of the long term agenda of the government, as he stated that the seven years perspective plan, which will be unveiled by the NITI Aayog soon, will seek legislative changes, while the 15-year Vision Document would call for institutional reforms, including Constitutional amendments. Debroy also argued that exemptions in the case of personal income tax should go on the lines of the corporate tax.
Panagaria stated that the draft “Three Years Action Plan” envisages expansion of tax base and simplification of the tax system through reforms such as consolidating existing custom duty rates to a unified rate. The draft also advocates creating an institutional mechanism for promoting competition through comprehensive review and reform of government regulations across all sectors.