IncomeTax on farmers’ income has been talked about and debated from time to time and every time turned down. This time, too, Arun Jaitley while presenting the Finance Bill in the Parliament said nothing new in that the farmers’ income will not be taxed. We wish he had done something different as in a developing country like India, where huge expenditure is still required for infrastructure development and where GDP ratio is not at par with the desired benchmark, it is high time that agricultural income was taxed. However, BJP like any other party is indulging in the politics of vote bank. But it was BJP that was keen on overhauling the tax laws and structures, so they could well have also brought about this change.
It is indeed a bold and dynamic step, but one could expect BJP to take a step like this. However, they have turned out to be as focused on looking at vote banks as the other parties.The argument usually used by the political parties to justify not taxing the agriculture income is that it might get reflected in the food prices, but that
is not true. In fact taxing agricultural income at a moderate 5 per cent can help the small farmers grow as argued by some economists. By paying taxes they will have tax returns and thus they become entitled to formal loans. Given the importance of access to finance, the policy in India has been to compel banks to lend to the underserved.
The fact that access to formal finance remains a challenge even after decades of implementation of such policies demonstrates that such coercive policies have borne little fruit. So if the farmers have tax returns to show to the banks they will be able to access formal finance.
In the Indian context, the people who are involved in cultivation and produce agricultural income always enjoy the sympathy of the law makers due to the rising trend in suicides. So the immediate response is no taxes whereas the reason could be different. While taxing farmers, will benefit the small farmers, it will also help the country as taxing agricultural income will lead to more money in the system for better development of infrastructure and other social sector spending.