Debroy suggests tax on farm incomes, NITI Aayog distances itself

Bibek Debroy, a senior adviser to the new planning body, NITI Aayog, on Tuesday proposed that farmers in India also pay tax so as to increase the tax base in the country where a majority of the people are engaged in agriculture and related activities.

Economist Debroy was explaining the reason why in a country of 1.3 billion people there are only 37 million income tax payers.

He wanted farmers in rural areas should be liable to tax on their incomes at the same thresholds where business incomes and salaries of employees are taxed. He also suggested a three-year average of incomes to account for income fluctuations due to natural calamities.

However, NITI Aayog today issued a clarification stating that its Draft Three Year Action Agenda (published today, ie 27 April 2017), does not contain any such proposal.

''Several newspaper reports published on April 26, 2017, state that NITI Aayog or its Draft Three year Action Agenda has recommended that Farm Income in India be taxed to expand the existing income tax base. The NITI Aayog categorically states that this is neither the view of the Aayog nor is such a recommendation made anywhere in the Draft Action Agenda document as circulated to the Governing Council at the meeting on 23 April 2017,'' the NITI Aayog stated in its clarification.

NITI Aayog said the views on taxing farm income expressed by member Bibek Debroy were personal and not those of the Aayog.

With tax revenue accounting for just 17.7 per cent of India's gross domestic product – the lowest even among emerging economies - the country's public finances are in a precarious position, according to the International Monetary Fund.

The Narendra Modi government is in no mood to impose tax on income from agriculture, which it wants to promote.  Finance minister Arun Jaitley has ruled out taxing farmers, telling parliament last month, "Income from agriculture will not be taxed."

In fact, Prime Minister Narendra Modi has promised to double farmers' incomes by 2022.

NITI Aayog held a conference last week to mark the end of India's 12th, and last, five-year plan and to circulate a draft three-year "Action Agenda", to be followed by a seven-year "Strategy" and a 15-year "Vision" for India's development.

Vice chairman of NITI Aayog, the finctional head of the policy planning body, Arvind Panagariya, parried further questions on taxing rural incomes.

There is, however, scope for taxing farm incomes as at least a small number of rural households exploit the tax exemptions provided to small farmers with uneconomic holdings.