Government think tank NITI Aayog has suggested that farmers’ income above a threshold be taxed to expand the taxpayer base and check the generation of black money through camouflaging of other income as agricultural income. In its draft three-year action agenda, NITI Aayog has made a case for taxing farmer incomes to bring parity among citizens living across the spectrum, be it in urban or rural areas.
“The eventual answer to further expand the personal income taxpayer base, besides elimination of exemptions, is also to tax the rural sector, including agricultural income,” its member Bibek Debroy said.
He said rural India is virtually out of the purview of personal income tax as nearly 3.7 crore personal income taxpayers are largely concentrated in urban areas and comprise the salaried class. Out of nearly 25 crore households, nearly two-thirds reside in rural areas.
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While the Aayog’s suggestion would require an amendment to the Constitution for the Centre to tax farm income, the states would also have to come on board on the politically sensitive issue involving farmers. The reason for exemption of agriculture income from Central taxation is that the Constitution gives exclusive power to make laws with respect to taxes on agricultural income to the state legislature.
In the Budget for 2017-18, finance minister Arun Jaitley retained the basic exemption limit for taxation at Rs 2.5 lakh, but reduced the tax rate to 5% from 10% for income between
Rs 2.5 lakh and Rs 5 lakh. The move was aimed at not further reducing the taxpayer base.
Among other tax proposals, NITI Aayog vice-chairman Arvind Panagariya said existing custom duty rates be consolidated to a unified rate, say 7%, to tackle tax evasion and address complaints related to tax credit.
In May 2016, the Prime Minister’s Office advised the NITI Aayog to prepare a 15- Year Vision, 7-Year Strategy and 3-Year Action Agenda to replace the outdated 5-Year Plans. The Vision and Strategy documents spanning 2017-18 to 2031-32 are work in progress. The Action Agenda covering the period from 2017-18 to 2019-20, the last years of the Fourteenth Finance Commission, was circulated in the think tank’s governing council meeting on April 23. All the chief ministers are members of the council, which is chaired by the Prime Minister. The three-year action plan will be finalised after states give their feedback.
The three-year plan proposes reduction of the fiscal deficit to 3% of the GDP by 2018-19, and the revenue deficit to 0.9% of the GDP by 2019-20. The road map proposes to shift additional revenues towards high priority sectors such as health, education, agriculture, rural development, defence, railways, roads and other categories of capital expenditure.
Its overarching action points include addressing the high and rising share of non-performing assets in India’s banks through supporting the auction of larger assets to private asset reconstruction companies (ARCs), and strengthening the State Bank of India-led ARC. “Public-sector ARC is a difficult thing to do,” Panagariya said.
Chief economic adviser Arvind Subramanian had suggested a public ARC in the latest Economic Survey.
The Aayog’s action plan also sought implementation of the road map on closing select loss-making PSUs and strategic disinvestment of 20 identified PSUs.