Landowner and leaseholder equally liable to pay agri tax

Tareen’s failure to pay tax on Rs1.6 bn income

ISLAMABAD: The Punjab Agriculture Income Act (PAIA) and the Income Tax Ordinance (ITO) categorically define agriculture income, which is currently under discussion in a petition seeking disqualification of Pakistan Tehreek-e-Insaf (PTI) Secretary General Jehangir Tareen.

The agriculture income tax is mandated by the Constitution. Article 260 (1), which says agricultural income means as it is defined for the purpose of the law relating to income tax.

Section 41 of the ITO and section 2A of the PAIA define agriculture income. Both these laws clearly state that agricultural income means any rent or revenue derived from land and is used for agricultural purposes; and any income derived from such land by agriculture; or the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by him fit to be taken to market.

These definitions of income liable to agriculture tax make no distinction between income of a landowner or a leaseholder. They lay down the principle that income from agriculture is to be taxed, irrespective of ownership.

The matter is further clinched in Section 4A of the PAIA, which deals with the computation of agriculture income and lists in great detail all the allowances and deductions that are permitted to an assessee of agriculture income tax.

It mentioned twenty-two items or expenses which are deductible while calculating agriculture income, ranging from expenses on seed, ploughing, tilling, fertilizer, tractors, agriculture implements, harvest, “usher”, electricity fuel etc. In section 4-A is listed rent of land used for agriculture. This shows that law intends to tax income from leased or rented land, but gives the allowance of deducting the rent as an expense.

During previous hearings on the disqualification case, the Supreme Court told Tareen’s lawyer that his client has failed to convince it that he was exempted from paying tax on 18,566 acres of leased land. The lawyer stated that 18,566 acres had been leased by his client in 2010 and earned around Rs1.6 billion agricultural income from it.

However, Chief Justice Mian Saqib Nisar told him that income from agricultural land comes in the form of rent to the person who owns it and in the form of harvest revenue. “Even if Tareen had acquired the land on lease, he was earning income on it and therefore, was liable to pay tax on the revenue being generated. Tareen had not consequently disclosed his entire income before the Election Commission of Pakistan (ECP). One part of the income from owned land was declared in the nomination papers while the other from leased land was not. What is the consequence of making incorrect declarations?”

In 2011, the Parliamentary Institute of Legislative Development and Transparency (PILDAT) had commissioned a briefing paper on tax on agriculture income by two experts. It had cited verbatim Tareen’s response: “The statement that ‘nobody is filing return of net income and by paying paltry acreage tax, is posing as if this is greater than tax on net income’, is not entirely correct. I have been filing and paying agri tax on income basis since the law came into effect. This year I have paid Rs9.6m which is way above what was due on acreage basis. When I filed my first return the Revenue authorities returned my cheque telling me I was not liable. I had to write to the Board of Revenue and the Provincial Finance secretary requesting them to accept my taxes. The non-collection of this tax is a failure of the Provincial Govt. Most farmers are not aware of this aspect of the tax law. All income should be taxable whatever the source. Not only farmers but “Artis”, wholesalers, shopkeepers etc., should all have to pay the same tax. Income earned outside Pakistan by Pakistani citizens should also be taxed and those who do not pay taxes should not have a right to impose taxes on others.”

This viewpoint of Tareen, who was then a member of the National Assembly, on agriculture income tax was opposed to the argument being advanced by his lawyer before the apex court now.

The income from 18,566 acres of irrigated land is Rs 1.6 billion rupees, as stated by Tareen in the top court. According to the PAIA, the tax is payable on this income at rate of Rs22,500 plus 15% for income exceeding Rs300,000, which could amount to Rs240 million.

As per PAIA, agricultural income means any rent or revenue derived from land, situated in the Punjab, and is used for agricultural purposes; any income derived from such land by agriculture; or the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by him fit to be taken to market; or the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by him; any income derived from any building owned and occupied by the receiver of the rent or revenue of any such land, or occupied by the cultivator or the receiver of rent-in-kind of any land.

However, the building is on or in the immediate vicinity of the land, and is a building which the receiver of the rent or revenue or the cultivator, or the receiver of the rent-in-kind by reason of his connection with the land, requires as a dwelling-house, or a store-house, or other out-building.

An assessee means a person by whom any tax or any other sum of money is payable under the PAIA and includes every person in respect of whom any proceeding under the PAIA has been taken for the assessment of his total cultivated land or for the assessment of his agricultural income or the agricultural income of any other person in respect of which he is assessable or of the amount of refund due to him or to such other person; every person who is required to file a statement of his total cultivated land or return of total agricultural income; and every person who is deemed to be an assessee, or an assessee in default, under the PAIA.

Cultivated land means any area of land which was sown at least once during the tax year, including land under matured orchard which bore fruit during the tax year, but excluding land under planted forest or forest nursery.