Meeting a long-standing demand to tax all sort of incomes, especially agri-income, to widen the tax base, the PTI-led government has launched a drive to recover outstanding tax on agricultural income from big landlords.
Under the drive, the government has sent tax notices to big landlords including many politicians.
Media reports stated that the government came to know that three out of every four people who declare agriculture as the source of income actually do not pay any tax on agricultural income.
Those who have been put on notice for recovery of agriculture income tax also include a former Prime Minister of Pakistan hailing from Balochistan.
Sources in Federal Board of Revenue (FBR) said that those, who have been sent notices, made false claims of paying provincial agriculture tax in order to get an exemption from the federal income tax.
But the irony of the matter is that the alleged tax evaders were not caught by the tax authority. It was the Office of Federal Tax Ombudsman (FTO) that netted them.
The evaders claimed tax exemption from the FBR by declaring their sources of income as agriculture. As taxing agriculture income is a provincial subject, these landowners got exemptions from the federal tax collection body. But the FTO study revealed that about 75 percent of them submitted false statements as they did not pay any tax in the provinces on their income.
“All over Pakistan, 9,352 taxpayers have shown agriculture income and 6,668 people have not paid provincial agriculture tax,” according to a correspondence of the FTO with the FBR.
It added that only 2,384 people – only one-fourth of the total declarations – actually paid provincial agriculture income tax during tax years 2016 and 2017.
The FTO’s findings are based on the data received from the FBR. There were about 55 cases where the source of income was forestry, fishing, poultry and dairy farming but these were declared as agriculture income, according to the FTO’s findings.
FBR was taken off guard when the FTO sought replies on sheer negligence. The development took place in mid-November, according to the official correspondence between both the organizations. After that, the FBR started sending tax notices under Section 122(5) A of the Income Tax Ordinance.
The share of agriculture in the economy is about one-fifth but its share in total revenues is less than 1%, indicating huge tax evasion in the sector.
In 2013, the FBR introduced an amendment in Section 111 of the Income Tax Ordinance 2001. The amendment aimed to crack down against those who evaded income tax by hiding behind agriculture income.
However, the FBR did not take action against those landlords who claimed tax exemption on false statements that they had paid their due taxes in provinces.