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Agriculture: a neglected sector.

* The feudal system continues to dominate the agricultural economy in Pakistan.

* Additional revenue equal to 1.3 per cent of Gross Domestic Product could be generated.

* Wealth tax should be enforced on the big land lords.

Lately Finance Minister of Punjab openly criticised the Federal Government's agricultural policy which had reduced Pakistan to a single crop economy. The negligence of the agricultural sector has made food grain output stagnant in the country during the last four years Pakistan been regularly importing agricultural commodities like wheat, tea milk and milk products, and vegetable oil. Imports of food and live animals chiefly for food increased from Rs. 13.7 billion in 1990-91 to Rs. 18.0 billion in 1991-92 showing more than 30 per cent increase. The feudal system continues to dominate the agricultural economy in Pakistan. A report has been prepared by a committee to evolve a strategy for raising the level of economic and social well being during the Eighth Five Year Plan. According to the report, among the institutional factors hindering economic progress a feudal structure of private property rights is most serious.

The report pointed out that countries which have doubled per capita income in the last decade or so have all abolished feudalism. These countries include Japan, China and South Korea. The successive land reforms have not led to any substantial land redistribution.

Total area resumed under various land reforms does not exceed 4.5 million acres out of a total farm area of 50 million acres. The area redistributed on account of land reforms is even lower: only 3.7 million acres were redistributed among only a total of 291,000 beneficiaries. Land reform is the key issue in Pakistan though there is not much discussion of these issues these days.

Expert Committee suggested a number of measures for the next land reforms. According to one of these the land reform law should be kept simple and the stipulated ceilings be defined only in acreage terms. Secondly the ceiling must be made perpetual. There should be no exemptions and the ceiling should be fixed on the basis of per family. Such as ceiling would ensure resumption of large areas for redistribution among a large number of potential beneficiaries. The year 1993 faces an extra ordinary challenge of resource imbalance. The experts have conceded that the government has run out of options and more drastic remedies are called for. Under the circumstances the case of agricultural income tax should be again considered. Since the land aristocracy is also making money in the urban sector, the exemption of agricultural income tax is distorting the whole system as it is being used to evade tax on rising urban income. The World Bank indeed has been referring to the issue for the past three or four years. It insists that the tax is desirable on the grounds of equity, efficiency and to reduce evasion of taxes.

According to its experts, additional revenue equal to 1.3 per cent of Gross Domestic Product could be generated through a flat tax equivalent to about 14 per cent of value added in agriculture on land holding in excess of 12.5 acres. Exemption of small holdings up to 12.5 acres implies that more than 77 per cent of land-owners would not be hurt by the proposed tax. This only means mopping up of some resources from the fat incomes of those who usually squander a lot of money on conspicuous consumption.

To begin with the big farmers can be taxed with a certain exemption limit. The tax net be widened if the experience proves successful. Moreover, the wealth tax should be enforced on the big land lords. The industrialist claim that this is discriminatory as the industrialist class has to bear the entire tax burden although they are probably contributing more towards the national wealth by increasing GNP providing jobs and putting the country on the road to progress.
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Author:Haidari, Iqbal
Publication:Economic Review
Date:Jan 1, 1993
Words:657
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