Should farmers be taxed?

For Interview

The public image of farming being a poor man’s venture and the sizeable vote share that farmers enjoy have made the idea of farm taxes a political taboo. The frequent distress faced by poor or marginal farmers, which could be attributed to structural issues other than taxation, hasn’t helped matters either. But India has a presence of rich farmers as well and there exists as a strong justification for taxing them in order to widen the country’s embarrassingly narrow tax base. Mr. Debroy (member of the govt. think tank NITI Aayog) suggested that an appropriate tax policy should draw a distinction between rich and poor farmers.

It is no secret that India’s tax base, standing at a minuscule 5.9% of the working population, is already among the lowest in the world. This unnecessarily burdens the more formal sectors of the economy that are already overtaxed; at the same time, it handicaps government spending on the social sector.

The case for treating agriculture on a par with other sectors is thus clear. But policymakers must also show equal care and urgency in addressing the structural issues facing the sector. This includes, among many, reforms to the broken agricultural supply chain that still leaves farmers at the mercy of middlemen cartels. Such reforms are crucial if farming is to become a sustainable enterprise in the long run. Else, a tax on high-income farmers will result only in driving resources away from agriculture into other sectors.

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