In 2013-14, Kaveri Seed Company made a before-tax profit of Rs 215 cr but claimed exemption for Rs 187 cr. Monsanto India sought tax-free status for 68 percent of profit before tax of Rs 139 cr. Madhya Pradesh and Karnataka’s forest development corporations also claimed the same privilege.
(Kaveri Seed was in the news last year after capital markets regulator, Sebi, ordered a forensic audit of its books over the manner it was accounting for royalty payments on Bt cottonseed to Mahyco-Monsanto Biotech. The stock price fell from a 52-week high of Rs 1075 to a low of Rs 300 following that event).
Expanding the tax base would help as only 39 million or 5.5 percent of income-earning individuals pay income tax, according to the 2016 Economic Survey, a very low share compared to countries like the United States.
Allowing big farmers—individuals or companies farming more than say 30 acres—agricultural income-tax exemption makes no sense,” said R Durairaj, CEO and founder, Mother India Farms, with offices in Bangalore. Durairaj cultivates 200 acres of family land and supports agricultural-income-tax reform.
Income tax exemption for agricultural income is a colonial legacy. When introduced in 1886 income from agriculture was kept out of its ambit because of land levies. The right to collect any form of agricultural income tax was vested with the colonial administration.
In 1935, the right to land revenue, and to potential agricultural income tax, was transferred to the provinces, that is, today’s states. Since then, each state has developed its own agricultural income tax policy, with interstate disparities. Uttar Pradesh introduced agricultural income tax in 1948, and repealed it in 1957. It was one of six states to flip flop thus in the first decade post Independence. This was ‘to move away from oppressive agricultural taxes under the British, one of the reasons for the freedom struggle’, says Indira Rajaraman, economist and RBI Chair Professor, National Institute of Public Finance and Policy, New Delhi.
(Top photo not related to companies mentioned in this report; only representational. Photo by Vivian Fernandes)