An autonomous research institute under the Ministry of Finance


Design of a Land-Based Agricultural Presumptive Tax for Use by Panchayats

Publication date

Jan, 1998


NIPFP Report.


Indira Rajaraman and M. J. Bhende


This report proposes, and provides the design for, a crop-specific presumptive supplement to the land revenue, which like the land revenue will be land-based and levied per acre. The supplementary levy is to be related, on the basis of income norms obtained from field surveys, to observed crop yields, which will serve as the presumptive indicator. The case for a crop-specific levy is predicated on the assumption that returns to cultivation are not equalised by cropping pattern shifts, even within a homogenous agro-climatic region, because of supply-side entry barriers in terms of soil and irrigation requirements, and further constraints imposed by the need for bilateral tie-ups between the cultivator and buyer in sunrise sectors like seed propagation. The design for the levy proposed includes exemption for crop failure, whether idiosyncratic or non-idiosyncratic, in the form of a threshold yield below which the tax does not apply. The only information required for each assessment year is a listing of cultivators growing any of the crops in the subset selected for taxation and an identification of those in each list whose yields did not fall below the stipulated exemption threshold. Such information will be easily and costlessly obtainable locally, which is why levies of this type are feasible only at panchayat level. The list of crops for consideration will first be identified by panchayats in accordance with the local ordering in terms of profitability, and forwarded to a state-level agency, which will define the taxable subset based on surveyed data. It is recommended that the revenues so raised should be jurisdictionally retained for improvement of agricultural and other infrastructure. This will facilitate compliance, give panchayats a stake in enforcement, and enable downward accountability in place of the upward accountability ensured by present systems of audit and control of government expenditure.

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