Taxing agri income: Distinction between rich, poor farmers needed, says CEA

Earlier, Bibek Debroy had courted controversy by saying that agricultural income should be taxed

Just days after Union Finance Minister Arun Jaitley ruled out any move to tax agricultural income, Chief Economic Advisor Arvind Subramanian joined the debate and said there could be a distinction between poor and rich farmers. In a reply to a question on the issue, which has become controversial after two NITI Aayog members made contradictory statements, Subramanian said at a CII event here on Friday, “When you say farmer, people think that you are going after the poor farmer... Why can’t we say the rich, regardless of where they get their income, should be taxed?” he said, adding that one could be very socialistic despite making a distinction between poor and rich farmers. 

“All good policies require us to make certain distinctions. The question is, why are we not able to make those distinctions,” Subramanian said.

He said the legal situation was such that nothing prevented state governments from taxing agricultural income, though there was a constitutional restriction on the central government to impose such a tax. 

“It is a choice that the 29 state governments have to make and if there are willing takers for this — all power to them,” the CEA said.  In his annual Economic Survey, Subramanian had touched upon the issue of taxing agricultural income. 

The three-year draft action agenda of the NITI Aayog circulated among chief ministers last Sunday did not explicitly suggest levying tax on farm income but suggested plugging the loopholes that enabled non-agriculture entities evade taxes by showing agricultural as their source of income.  A controversy erupted earlier on the issue after NITI Aayog member Bibek Debroy suggested that agricultural income should be taxed. NITI Aayog quickly distanced itself, saying his views were personal. At the same event later, NITI Aayog Vice-Chairman Arvind Panagariya declined to comment on Subramanian’s views and reiterated the Aayog’s stand on the matter.

“Don’t ask me what he said. Unequivocally, the NITI Aayog’s view is that there should be no taxation on agricultural income. If you look at the poor, however you measure them and whichever poverty line you choose, 80 per cent are in the rural area and connected to agriculture,” Panagariya said. 

In his speech, Subramanian also said that foreign exchange competitiveness was critical for growth and called for a rupee exchange rate that would promote exports.  Championing the cause of competitive exchange rates, he said that this factor was a very “important instrument to maintain competitiveness and boost growth”. 

Subramanian said the strong exchange rates over the past two years were hugely impacting exports and that it was a misguided notion that strong currency rates were identical to national growth and economic strength. He said that India Inc should be more vocal on exchange rate issues. 

India had to keep its focus on exports of products despite the various interpretations of globalisation that were going on across the world, he added.