Khan, M. Irshad

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RESEARCH REPORT SERIES 
No, 15 
Direct Agricultural Taxes in Pakistan 
By 
. ,.,DIE 
iENt 
;Es 
PAKISTAN INSTITUTE OF DEVELOPMENT ECONOMICS 
O L D S I N D A S S E M B L Y B U I L D I N G 
B U N D E R R O A D , K A R A C H I 
P A K I S T A N 
No. 15 
Direct Agricultural Taxes in Pakistan 
By 
M„ Irshad Khan 
The Research Reports of the Pakistan Inst i tute of 
Development Economics are circulated to inform interested 
persons with regard to research progress at the Ins t i tu te , 
xucofe tcpurts may be rree ly circulated but they are not to 
be quoted without the permission of the author. Work on 
this manuscript i s s t i l l in progress; comments are. invi*;id 
to improve the f i na l vers ion. 
August 1964 
PAKISTAN INSTITUTE OF DEVELOPMENT ECONOMICS 
OLD SIND ASSEMBLY BUILDING 
BUNDLE ROAD, KARACHI-1. 
(PAKISTAN) 



water rates in West Pakistan; i f we separate the water rates from taxes* then the 
agricultural taxes in West Pakistan i s not higher than in East Pakistan and,, as a 
.matter of fact the E£gt PrJcjsta^^^ in later years. 
There' was a sharp r ise in revenue from agricultural taxes in West 
Pakistan in 1956-57, presumably due to the integration of the former provinces into 
:ne unt i t in 1955-56. The integration made i t possible to apply the-administrative• 
set up of Punjab into a l l of West Pakistan, The o f f i c i a l s responsible for the 
real ization of revenue in Punjab, where' a wel l set administrative system' existed, 
were enabled to u t i l i z e their administrative experiences and superior organization in 
other narts of West Pakistan, As a result the revenue increased sharply. Revenue 
<__ 
from agricultural taxes in East Pakistan shafaly d eclined in 1962^MjL_,Tho high 
agricultural tax revenue in East Pakistan 'in 1953-59 presumably due to the payments 
of arrears a f ter the imposition of Martial Law in October, 1958, 
The pattern of- growth in agricultural tax revenue can be 'understood 'noro 
clearly i f we analyse the growth of individual direct taxes in E;,st Pakistan and 
West Pakistan from 1947-43 to 1963-64. 
Individual Direct Taxes: 
Table I I shows't ho ^rcWfch at individual direct taaoo^ in " " ; ' ' ' a 
East and "ifest Pakistan from 1947-40 to 1963-64. We shall analyse each, of them separate 
Land Revenue: 
Land ravenue i s a major contributor of revenue in East Pakistan . I f we y • 
deduct the proportionate share of 3 months from the lend revenue in 1953-59 we get a 
steady and rapid growth of land revenue in East Pakistan with the exception of the 
year. 1962-83 where there was a sharp decline in land revenue. In West Pakistan, there 
i s much fluctuation in land revenue and the growth of land revenue is also slow. 
A f te r a sharp r ise in J_956^57. due to integration of West Pakistan in 1955-5 6, land 
revenue has in fact gone down in West Pakistan. The f igures for land revenue in 
West Pakistan suggest either one or a l l of the three things; ( l ) a signif icant 
proportion of land i s rendered uncultivable because of water logging and sal inity 
and/or any other factor l ike wind erosion etc ; (2) the share of the irr igat ion 
department in. the land revenue has been rising. (3) the landowners try successfully 
to get some of the i r lands c lass i f ied as uncultivable or waste land. Since the 
proportion of the i rr igat ion department .in land revenue i s fixed at 90 per. cent in 
i ] Upto 1950-59, tho f i s ca l yoar in Pakistc-n was Apri l to March. In 1953-59 
i t was changed tn July to June ar a result of v/nich" 1958-59 figures include 
data for 15 months i . e . o r i l to June. 
- 5 -
y 
Sind ond around 50 percent in Punjab, the f i r s t end second factors seem to have more 
influence on the col lections of lend revenue in West Pakistan. 
•Jeter Hates: 'A. 
Water rate i s pract ical ly non-existent in East Pakistan since there are 
no i r r igat ion canals. The revenue under water rate in East Pakistan shows the 
real izat ion from navigation channels. 
Water rates are veay important in West Pakistan where there i s a net 
work of i r r igat ion canals. The West Pakistan I r r iga t ion Department col lects water 
rates d irect ly as wel l as claims a portion cf land revenue collected by the 
Agricultural Department in canal i r r igated areas on the plea that land revenue in 
these areas acmes mainly because of i r r igat ion canals. Direct col lect ion of water 
rates remained almost constant up to 1955-56, except f o r the year 1949-50 when i t 
rose temporarily. When West Pakistan was integrated into one unit in the year 
1955-56, the revenue from water rates rose sharply and continued to grow rapidly t i l l 
i t attained a l eve l of 162 mil l ion rupees in 1960-61. A f ter that i t leveled o f f . 
The big jump in revenue from water ra.tes in 1959-60 i s due to the recovery of 
arrears by the Martial Law Regime. 
.'^ricultura.l Income Tax; 
The revenue from agricultural income tax has been larger in East Pakistan 
than in West Pakistan. In East Pakistan, i t rose t r a peak of 14.5 mill ion rupees in 
1957-58 as compared to only 2.7 mil l ion rupees in 1947-48, but there has been no 
discernible trend. In both wings i t actually decreased in later year a. The 
real izat ion of agricultural income taxes in the two wings suggests that land-lords in 
West Pakistan get taxed very l i t t l e oven though they ha.ve large land holdings and 
consequently high incomes. 'The y ie ld cf agricultural income taxes in West Pakistan 
may be either due to the system, of assessment on the basis of land revenue and not 
actual income or due to politica.1 influence of the landlords or due "to both. 
Burd.en ..of_Direct Taxes.on - sriculture; 
I t i s very d i f f i c u l t t o estimate the burden of direct taxes on agriculture 
when there i s no sat is factory breakdown of rural-urban population and agricultural -
non-agricultural income in the two wings of Pakistan. Nevertheless, we have made an 
Taxation Enquiry Committee Report op . c i t . po.240-241. 
- 6 -
attempt to show how much taxes ere paid per acre, per joreoiV^ and in relation to the 
income in the agricultural sector of the country. T"ble I I I shctHJ 
;ax revenue in the two wings in relation to the population in agriculture, acreage 
tinder principal crops, end agricultural income. 
I t i s obvious that the agricultural population in .est Pakistan is paying 
taxes per acre, per person, end as a ratio to the agricultural income, which ere much 
higher than the corresponding figures in East Pakistan. This is mainly because of 
water rates which are the major portion of tax revenue in West Pakistan. The important 
point to be noted i s that per acre, per person as well as per rupee of income, tax 
in agriculture show a steadily r is ing trend. The upward r is ing curves of per capita 
t-. xes, per acre taxes and per rupee of income, taxes are more smooth in East 
Pakistan 'than in West Pakistan except f o r the later years when l l e r t ia l Law end 
crop failures'seem to disturb the trend in East Pakistan in 1958-59 and 1962-63, 
respect ively. 
The abolition of Ze.cinde.ri system in East Pakistan in 1951 seems to have 
increased the land revenue in East Pakistan. Upto 1950-51, the per acre t rxes in 
East Pakistan were constant; they began to r ise from 1951-52 due to the acquistion 
of property under the East Bongal Act of 1951. The same pattern holds true for per 
capita, taxes and te.xes ss ".. percent of income. I t can, therefore, be concluded that 
direct collection of revenue by Government from the agriculturists is more e f f i c i ent 
from revenue point of view. 
Ccroparison jdth. JJirect Non-agricultural Taxes; 
To compere agricultural taxes with non-agricultural taxes, we have f i r s t 
calculated the per capita tax burden and then compared the rat io of taxes to the 
income in t'ho two sootors. Hon-agricultural taxes include only income and corporation 
taxes. 
Tabic IV shoos tho, grcv.th of JTJV capitc t x©b • cd the growth 
of taxes in relat ion to income in the two sectors. I t i s obvious that per capita 
taxes in the non-agricultural sector are much higher compared to per capita taxes 
in the agricultural sector. Moreover, the rate of growth of non-agricultural te.xes is 
very high in relat ion to the rate of growth of agricultural taxes. .On the other hand, 
te.xes in relation to income have grown at a greater rate in the agricultural sector; 
although the ratios of taxes to income are a l i t t l e higher in the non-agricultural 
.c 
sector exccpt four years. 
bZ/^There is a conceptual problem in computing per' capita/taxes. The agricultural taxes 
y were taken ao a rat io to rural population and non-agricultural taxes as a ratio to 
urban population. Since there are many people in rural area.s '•./hose incomes do not 
originate/this ovcretatoe the per capita, non-aprieijittiwi 
•Ul— x i- _ -
T 1 -1 
The above analysis suggests that taxes have grown in the non-agricultural 
[ 
sector at a rate faster then ths rate of growth of popule.tion end the rate of 
growth of population has been nuch lower then the rate of growth cf income in the 
hon-agricultural sector. Per capita taxes and per capita income in the non-
agricultural sector seem to grow e.t the same rate, as a result of which taxes as a 
percentage of non-agricultural income i s more or less stationary over the period 
studied. 
In the agricultural sector, the per capita taxes do not seem to jgaw *— =— ~ 
at the same rate at which the r a t i o of texes to agricultural income has grown. 
The higher rate of growth of taxes in relation to agricultural income suggests that 
population has grown at a higher rate or at least at the seme rate at which the 
income has grown .in the agricultural sector or the growth of income has been, 
either, stationery or has declined over the neriod studied. This means that per 
1/ 
capita income must have gone down in the agriculture.1 sector. 
u John H. Power, Industrialization in Pakistan: t case of Frustrated Take-
o f f , Pakistan Development R e v i O p . . . . pp. 192-207. 
CONCLUSION 
Contrary to the general view which holds that agricultural taxes 
have been stationary, we have found that direct taxes on .agriculture have been 
increasing since independence. There are also accusations by farmers that they 
are overtaxed and by the non-agricultural sector that i t i s also overtaxed. By 
looking only at direct taxes i t i s not possible to support either of these claims, 
since the ratio of direct taxes to income in the two sectors i s not noticeably 
d i f f e rent . Naturally both these subjects need further study, for the inclusion 
of indirect taxes, other minor direct taxes, and the e f f ec t of other government 
pol ic ies could seriously change the eva.lua.tien suggested here. But i t i s important 
to note that this preliminary investigation does not support the strong claim 
of either the agricultural or the non-agricultural sector. 





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Direct agricultural taxes in Pakistan

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Direct agricultural taxes in Pakistan

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