Levying of “agricultural income tax” is the sole prerogative of provinces under the 1973 Constitution (hereinafter: “the Constitution”). All four provinces have enacted laws for imposing ‘agricultural income tax’, but these are mere deceptions. In reality, the provincial assemblies have violated the constitutional provisions relating to income tax on “agricultural income”. They have failed to realise that if the expression “agricultural income” can be construed in any manner, it can render the application of Entry 47 of the Federal Legislative List contained in the Constitution as meaningless.
The national Parliament also violated the Constitution in 1988 by adding two provisos in clause (1), Second Schedule to the repealed Income Tax Ordinance 1979 requiring that in the case of directors of companies and persons engaged in business or profession, “agricultural income” should be included in their total income for “rate purpose.” The Parliament, in fact, indirectly levied tax on “agricultural income” violating the cardinal principle that what is not permitted directly is equally prohibited indirectly. This gross violation of Article 70(4) &142(c) read with Entry 47 of Federal Legislative List was challenged in writ petitions and the matter is sub judice before a High Court for the last 25 years!
The vital question as to what constitutes “agricultural income” for the purpose of Entry 47, Part 1 of Federal Legislative List provided in Fourth Schedule to the Constitution, has been ignored by all. It is obvious that if no authoritative definition of “agricultural income” exists, the national and provincial Parliaments can encroach upon each other’s constitutional jurisdiction. Uniformity is necessary for determining the expression “agricultural income” so that all provincial laws conform to the Constitutional command and no discrimination occurs among the people of the four provinces and those living in federally-administrated areas. The answer as to what constitutes “agricultural income” is available in Article 260(1) of the Constitution, which says:
In the constitution, unless the context otherwise requires, the following expressions have the meaning hereby respectively assigned to them that is to say, –
“Agricultural income” mans agricultural income as defined for the purpose of the law relating to income tax.
This is an exhaustive and exclusive definition leaving no room for any controversy. In terms of Article 70(4) read with Entry No. 47, Part 1 of the Federal Legislative List and Article 142(c) of the Constitution of Pakistan, the provinces alone are competent to levy income tax on “agricultural income”, as defined in the Income Tax Law. Unfortunately, no Provincial Legislature paid attention to this constitutional command. The definition of “agricultural income” as contained in Income Tax Law cannot be altered even by the national Parliament without the prior sanction of the President of Pakistan as provided in Article 162 of the Constitution that says:
Prior sanction of President required to Bills affecting taxation in which Provinces are interested: - No Bill or amendment which imposes or varies a tax or duty the whole or pat of the net proceeds whereof is assigned to any Province, or which varies the meaning of the expression “agricultural income” as defined for the purposes of the enactments relating to income-tax, or which affects the principles on which under any of the foregoing provisions of this Chapter, moneys are or may be distributable to Provinces, shall be introduced or moved in the National Assembly except with the previous sanction of the President.”
Since the issue is that of distribution of legislative powers between Federation and Provinces, the Constitution is unequivocal in defining what “agricultural income” is. For protection of the rights of Provinces it imposes a restriction on the national Parliament not to introduce any Bill aimed at varying the meaning of the expression “agricultural income” except with the previous sanction of President of Pakistan.
Very few people know that in the wake of the tragic coup d’état on July 5, 1977, a military dictator not only overthrew the elected government of Zulfikar Ali Bhutto but also thwarted the historic decision of taxing “agricultural income” made through Finance (Supplementary) Act, 1977. The feudal legacy under Zia’s 11-year rule continued, rather strengthened as mighty generals emerged as the ‘new land barons’ — see details in chapter 7 of Military INC: Inside Pakistan’s Military Economy by Ayesha Siddiqa. Absentee landlords that include politicians and mighty militro-judicial-civil complex pay not a single penny or negligible amount as agricultural income tax.
The provinces have no will to collect income tax from the rich and mighty absentee landlords. Even a cursory look at laws promulgated by them to tax “agricultural income” (and amendments therein from time to time) proves this point. KPK has not even provided the definition of “agricultural income” in its Agricultural Income Tax Ordinance, 1993.
The tax levied under the name of “Income Tax” is, in fact, a land tax on the basis of produce index units. The same has been the case with Sindh Agricultural Income Tax Act of 1994 as amended from time to time similar to the Punjab Agricultural Income Tax of 1997. No effort was made till 2000 to impose income tax on total income earned from this source. A face-saving device was restored to satisfy the foreign donors by enhancing land tax on acre basis providing different rates in respect of irrigated and non-irrigated lands.
In Balochistan, the position was no different till 2000. From 1993 to 1999, the Balochistan Legislature promulgated various Agricultural Income Tax Ordinances, amended from time to time, following the same pattern as was adopted in the other three provinces. Neither any province nor the federal government for areas administered by it has provided basis for computing “net agricultural income”. They also extend no exemption to small farmers. The enactments are favourable for the rich land barons and detrimental to small farmers, who are paying exorbitant sales tax on many inputs used by them.
The above analysis shows that all the four provinces and federal government, while levying tax on “agricultural income”, violated Article 260 of the Constitution. The so-called laws imposing income tax on “agricultural incomes” are nothing but land tax. No income tax on net agricultural income has been levied till today as was the case under Finance (Supplementary) Act, 1977, passed by the National Assembly in the last year of Zulfikar Ali Bhutto’s rule. All the military and so-called democratic governments since then have shown no will to tax rich absentee landlords — many politicians, judges and members of civil-military bureaucracy own substantial cultivated lands, in some cases given to them as perks or gallantry awards.
It is tragic that while the poor farmers pay 16-20 per cent sales tax, the rich and mighty absentee land barons enjoy state lands as perks and pay no taxes. The provinces either do not levy income tax on “agricultural income” (as defined in the Constitution) and where such a tax is imposed, it is just eyewash.
The military as well as civil governments are guilty of total disrespect to the Constitution. This explains why democracy has failed to work in Pakistan. No country can become a democratic society by just holding elections unless it demonstrates respect for rule of law by action and not through mere lip-service (highly widespread in Pakistan). In our country, we have witnessed just the opposite; lawmakers themselves violate the law while advising others to show respect for rule of law!