Millionaire farmers in India reap billions in tax savings

Mr Singh outside his mansion in Uttar Pradesh, northern India. He is one of thousands of rich landowners who do not need to pay taxes, thanks to laws that are meant to help the hundreds of millions of poor farmers who eke out a living from India's so
Mr Singh outside his mansion in Uttar Pradesh, northern India. He is one of thousands of rich landowners who do not need to pay taxes, thanks to laws that are meant to help the hundreds of millions of poor farmers who eke out a living from India's soil. The average farmer has less than a hectare of land and most struggle to eat two meals a day.PHOTO: BLOOMBERG

Indian landowners benefit from loophole in laws designed to help needy farmers

NEW DELHI • Stuffed animal heads adorn the walls of Mr Kunwar Vikram Jeet Singh's mansion on the outskirts of Delhi, and he also owns a three-bedroom apartment in a gated condominium in the city. His children go to one of India's most exclusive private schools. Yet, Mr Singh does not pay income tax because he is a farmer.

He is one of thousands of rich landowners benefiting from laws designed to help the hundreds of millions of poor farmers who scratch a living from India's soil. The average Indian farmer has less than a hectare and most struggle to eat two meals a day. Mr Singh's family farm has 40ha.

Worse still, some people are buying agricultural land to avoid paying taxes by declaring their earnings as returns from farming, opposition lawmaker Sharad Yadav told Parliament in March.

Citizens declared about US$29 trillion (S$39 trillion) worth of agricultural income in the year through March 2011. That is almost 15 times the value of India's economy.

The figure was provided in response to a Right to Information request by former tax officer Vijay Sharma, who says the number is probably a computation error and should be closer to 1 per cent of gross domestic product or US$20 billion.

TIME TO TAKE ACTION

There are top-of-line farmers who are well protected by incentives and it is high time that we started thinking of taxing them.

MR PARTHASARATHI SHOME, a former finance ministry adviser.

Several requests for clarification from the government have gone unheeded, which pushed him to approach the courts. In the nine years through March this year, Indians declared US$21 billion as agricultural income, according to provisional data from the Revenue Department.

But the confusion underscores the uncertainty surrounding the estimates. "It's a simple case of money laundering," said Mr Sharma, who served in the tax department for more than four decades.

Responding to Mr Yadav, Finance Minister Arun Jaitley said the authorities are investigating tax evaders that include some "prominent names" and urged the Opposition not to cry "political victimisation" when they are prosecuted. He did not give names.

The lost revenue is a blight in a nation where direct taxes as a share of the economy have fallen to the lowest in almost a decade, despite Prime Minister Narendra Modi's pledge to crack down on tax evasion. With so little revenue, the government is having to borrow a gross 6 trillion rupees (S$120 billion) to help fund the government and finance spending on roads, ports, power plants and other public projects this fiscal year.

The government should start taxing large farmers to reduce that debt burden, said Mr Parthasarathi Shome, a former finance ministry adviser. "It is a question of equity," said Mr Shome, who also served as the chief of tax policy at the International Monetary Fund in the 1990s. "There are top-of-line farmers who are well protected by incentives and it is high time that we started thinking of taxing them."

Mr Jaitley has ruled out imposing income tax on farmers, most of whom struggle to even feed their families. Almost 12,500 farm workers committed suicide in 2014, Junior Agriculture Minister Mohanbhai Kundariya said in April.

And taxing rich farmers is politically dangerous. Many leaders across the political spectrum come from a farming background and have considerable land holdings.

Measures to help the 833 million people who live in villages in India also benefit rich landowners. They can buy fertiliser at reduced rates, a subsidy that costs the government about US$10 billion a year nationally, more than it spends on healthcare or higher education.

Farmers also get cheaper electricity than factories or homes. Some states, like Punjab and Tamil Nadu, offer power virtually for free.

"The large farmers are clearly gaining," said Ms Shweta Saini, a consultant at the Indian Council for Research on International Economic Relations, a Delhi-based think- tank. For smallholders, "whatever you are producing, you are eating".

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on July 07, 2016, with the headline 'Millionaire farmers reap billions in tax savings'. Print Edition | Subscribe