Business Bytes Hot Takes: To Tax or Not to Tax?
The Cost of Agricultural Exemption
Ever shuddered at the term ‘income tax’? Already calculating how much of the juicy CTCs on those Superset job profiles will truly be yours?
Even though the government recently made annual income under ₹ 7 lakh tax-exempt (under the new tax regime though LOL), if you truly — and legally — want to live an income tax-free life, you might consider becoming a farmer.
Why? Because agricultural income is exempt from income tax, of course!
A more interesting question is, why, and should it continue to stay that way?
Read on to know more! (We know the word ‘taxes’ is prone to causing nausea among a lot of readers, but we promise you won’t be bored :))
The Story
Why should you care about taxes, and who pays them?
According to this amazing diagram, income tax makes up for 15% of the Union Government’s total receipts, the same as corporation tax. It’s a big chunk of government revenues, and it matters who pays them. And as things stand, none of these revenues come from agricultural income.
Why don’t farmers pay taxes? The decision to not tax agricultural income dates back to the colonial era and finds its roots in the zamindari system. Every history textbook has narrated the exploitation zamindars subjected farmers to by exacting rent and appropriating produce as per their whims and fancies. While our colonial rulers weren’t exactly generous, they did decide to exempt agricultural income from taxation, most likely to avoid revolt (and because they probably didn’t need the money anyway).
After the British left, and the zamindari system was abolished, why didn’t we start taxing agricultural income? After all, even until 1990, 65 percent of our population was engaged in agriculture.
Naturally, there were political considerations at play. Although India has always been a vast, fertile territory, it was not self-sufficient in grain production, relying on imports or aid. We only attained self-sufficiency in food production in the mid-1970s, after the Green Revolution. The tax exemption was probably intended to incentivise agricultural production.
Today’s India is different, thanks to these changes — we’re self-sufficient in food production, and although there remains an element of uncertainty in most farmers’ livelihoods (due to weather patterns, demand and supply, etc), some farmers do have significant landholdings and earn enough to be able to bear a tax burden.
Maybe now’s the time to tax them?
(And no, we’re not talking about taxing the 86 percent of farmer households that own less than 2 hectares of land and most likely make too little to fall under any tax bracket.)
Apparently, some states did try taxing agricultural income. When we asked ChatGPT which states introduced this tax and what were the results, this is what it threw up:
Several Indian states have introduced agricultural tax at different points in time, but the implementation and impact of these taxes varied across states.
One of the earliest states to introduce an agricultural tax was Maharashtra in
19641962. The tax was levied on the net income of agricultural landowners, and the revenue generated was used to fund rural development programs. However, the tax was poorly implemented and led to widespread protests and unrest among farmers, who saw it as an additional burden on their already struggling livelihoods. As a result, the government abolished the tax in 1976.In the
1980s1950s and 60s, several other states, including Haryana, Punjab, and Rajasthan, also introduced agricultural taxes. These taxes were mainly levied on the basis of landholding and were intended to generate revenue for the states. However, they faced similar resistance from farmers, who argued that the taxes were unfair and unjust, as they did not take into account the fluctuations in crop yields and prices. Ultimately, these taxes were also abolished in the 1990s.In recent years, some states like West Bengal have re-introduced agricultural tax, but in a different form. In West Bengal, the tax is levied on landowners who hold more than 10 acres of agricultural land and is used to fund development projects in the state.
Overall, the introduction of agricultural taxes in India has been a contentious issue, with farmers arguing that such taxes unfairly burden them and do not take into account the volatility of agricultural income. As a result, these taxes have often been short-lived, with state governments eventually abolishing them due to widespread protests and resistance from the farming community.
(We fact-checked this data, corrected it, and found additional sources, because we’re not *that* lazy.)
In fact, Kerala decided to abolish its agricultural income tax as recently as 2022, while the West Bengal government decided to temporarily abolish the tax for two years.
Here are some random figures on agricultural income tax collection during the olden times:
Given the obvious unpopularity of taxes, and even more so for agricultural income taxes, the only way to garner support for such a cause would be a fundamental shift in attitudes toward taxes.
How would you bring about this change? Maybe a movie about tax starring Akshay Kumar as an honest hardworking taxpaying farmer would help? Basically, a modern, anti-Lagaan style movie, where the people collecting the tax aren’t evil, and the people paying the tax aren’t poor. I don’t know.
Or maybe if rich people started bragging about how much tax they paid, the aspirational middle-class wouldn’t mind shelling out a bit now and then to hop on to the bandwagon. If the ancient Greeks are anything to go by, that model might just work (check out this fun article!).
In the meanwhile, a few brave, lone voices (mostly academics, policymakers, etc) continue to advocate for the imposition of this tax,1 not because it will line the coffers of the government and instantly solve all our financial problems, but simply because — and I cannot stress this enough, everyone needs to do their bit. Even if it’s a small, tiny amount. Not only does it build taxpayer discipline, it also signals belief in the present and future of this society and country we live in.
No matter how cynical, ideologically polarised and differing in our political preferences we might be, don’t we all want good roads, schools, and social security systems in place at the end of the day? And yes, you can spend days and hours debating and cribbing about the quantum of this tax and other ways to raise government funds — but taxes inherently aren’t that bad. And if someone working in an office or a park or a factory has to pay them, then why shouldn’t someone working on a field?2
(The author reserves the right to take a complete U-turn on their opinions once they start earning for real and the government starts going after their money.)
Bonus Content If You Made It This Far
“To tax or not to tax, that is the question:
Whether 'tis nobler in the mind to suffer
The slings and arrows of outrageous levies,
Or to take arms against a sea of bureaucrats,
And by opposing, end them? To farm—to yield,
No more; and by a yield to say we end
The tax-hike and the thousand fiscal shocks
That farmers are heir to: 'tis a consummation
Devoutly to be wished. To farm—to yield—
To yield! Perchance to harvest! Aye, there's the rub,
For in that harvest of plenty, what taxes may come,
When we have shuffled off this farming coil,
Must give us pause—there's the respect
That makes calamity of such a long tax reign.”- ChatGPT, in response to author’s prompt ‘Can you make a parody of Shakespeare's "to be or not to be" quote with reference to taxes on agricultural income’
We’re releasing our April Issue this Sunday, please keep an eye out :)
Fin.
Provided they fall under the taxable income brackets, of course