‘Taxing rich farmers is States’ call’

Two days after Finance Minister Arun Jaitley clarified that the Centre has no plans to tax farmers, Chief Economic Adviser Arvind Subramanian asked why rich farmers can't be taxed, and said that a decision on taxing farmers was in the domain of the 29 state governments, not the Centre.

The Niti Aayog had distanced itself from its member Bibek Debroy’s comments on Wednesday about taxing agricultural income above a certain threshold and stressed this is not part of its three-year action plan.

“Nothing prevents state governments from taxing agriculture income,” Mr Subramanian asked during a session of CII’s Annual Session 2017 on Friday. “The constitutional restriction is on the central government taxing agriculture income. “One could make a case that this is a choice open to 29 state governments and if there are willing takers, all power to them.”

Mr Subramanian also highlighted the importance of distinguishing rich farmers from poor farmers. “Why can't we say, rich regardless of where they get their income, should be taxed,” he asked.

On Wednesday, Mr Jaitley had said: “I have read the paragraph in Niti Ayog Report entitled 'Income tax on agriculture income'. To obviate any confusion on the subject, I categorically state that the Central Government has no plan to impose any tax on agriculture income. As per the Constitutional Allocation of Powers, the Central Government has no jurisdiction to impose tax on agricultural income.”

This statement was made in response to Mr Debroy’s suggestion on Tuesday that exemptions on income tax should be removed and that agricultural income above a certain limit be taxed.

The Niti Aayog was quick to distance itself from the statement, with member Ramesh Chand saying: “We never decided or said agricultural income should be taxed… If a person who is into non-agriculture activity is showing agricultural income, that must be investigated. This doesn’t mean unleashing tax inspectors on farmers.”

This is not the first time Mr Subramanian has made this point, having said it in February as well. “We are not saying tax the small farmers or the poor, of course not. But the point is if you set a tax limit and you want to bring more people into the tax net, then that should happen regardless of land or manufacturing or agriculture,” he had said at the time.

During his speech on Friday, the Chief Economic Advisor also said that the era of ‘hyper-globalisation’ was dead. “The steady growth in globalisation will proceed, but it will not proceed as rapidly as it has been,” he said. “And it is imperative that we are willing to open our markets as well if we expect open markets from others.”

In order to keep markets open, exchange rates must be kept competitive, Mr Subramanian added. “The exchange rate is very important to maintain competitiveness and economic growth. It is important to realise that a strong exchange rate is not a sign of economic strength.”