The Notion of Agricultural Income Tax

The agriculture sector of Nepal is crowded with many schemes that are aimed at providing farmers with support that would make their often expensive endeavor a little more affordable and profitable. When we look at the subsidies on fertilisers, seeds and agricultural inputs or even the loan schemes which seem complicated in its own regard, it is apparent that they are designed for the poor and marginal farmers. It is however a reality of Nepal that despite considerable benefit being concentrated in the sector, it has not been able to benefit these targeted farmers.

It thus often occurs to me, why marginal farmers who are struggling day in, day out do not receive them? Neither do I see them demanding a better way to run the things around, nor do they expect more from their government. They are generally happy with the crumbs that come their way. So, why is this habitual nature of being content with what is given rather than asking for best so potent in people’s mind? Why do the policies go unheard of? Aren’t there better solutions that can strengthen the mechanism of benefit distribution to these small farmers, that will ensure equal development of this important tier of our economy?

Could one of the possible alternatives be Agriculture Income Tax?

The notion of  ‘agricultural income tax’ seems to be swirling down in a vicious conundrum of income taxes. The idea of promoting the agriculture sector in terms of the taxation regime still resonates with people as something that is out of their repertoire. But to think of it, everyone pays tax — directly or indirectly. And those who pay the tax tend to be more insistent on expecting the value for their  money as both consumers of the government provided services and as a mere citizen of the country. The same can be replicated in terms of poor and marginal farmers. Following the footsteps of taxation, these farmers will not just remain as individuals who receive the many benefits provided, but also will have an equal say in demanding the services. Slowly and steadily, as small and marginal farmers demand accountability from the government, better services in the form of rural infrastructure, roads, irrigation, storage, cold storage facilities, agricultural prices, financial services, among others will be ensured.

The above notion can solve an overarching challenge that persists in our agriculture economy. Currently, the majority of farmers who receive the benefits are already better-off large-scale producers. This could be alarming as this is something that will continue to be reinforced, hindering the growth of small farmers. Marginal farmers not receiving the essential benefits, implies that their risk of failure is higher. The circumstance would make any rational individual choose the easy route – limiting the production to subsistence rather than investing in commercial farming.

On the other hand, imposition of agriculture income tax will compel the small and marginal farmers to consider the need to organise and rethink. It will not just make farmers reluctant to increase efficiency for commercialization of their farm goods, but also provide significant incentive to establish better cooperatives. When farmers pay taxes, they will  also seek better accountability, and for the same, try to influence necessary debates to push forward the notion of development rather than just remaining a mere beneficiary.

These are a few important aspects of how Nepal can develop and transform its agriculture sector from mere subsistence to large scale commercial one. The development of the agriculture sector thus cannot just be left to the naysayers and the whims of the unaccountable authorities.

While at that, the government authorities must comprehend that simple assumptions about levying taxes is not sufficient. The emphasis must also be given to broad policy issues which must be considered in designing and implementing an appropriate system of agricultural taxation in the country. The tax rate must be minimal and progressive and this must come full circle. Similarly, tax mechanisms should be simpler for even the less educated to understand.  Therefore, proper mechanisms are essential and also, the importance of investment in better research is more crucial now than ever.

Likewise, it is vital to ensure that much of the revenues generated through this medium have to be reinvested in the agriculture sector. One of the aspects that follows agriculture taxation is that, for the idea to turn into reality, the farmers must at least have taxable income. Redirecting the tax money in agriculture development can encourage the operation of commercial farms throughout Nepal. But again, expenditure planning should also be guided by immense motivation and proper research.

– This article was originally publised by Suzana Thapa Shrish in The Himalayan Times on March 08, 2020.