Bibek Debroy, a prominent economist and chairman of the Economic Advisory Council to the Prime Minister, passed away on Friday at the age of 69. A recipient of the Padma Shri award, Debroy’s contributions to Indian economic policy were significant, holding various influential positions, including chairing the Finance Ministry’s committee on infrastructure and serving as a member of NITI Aayog.
A Proposal on Taxing Agricultural Income
Debroy drew considerable attention for his bold proposal to tax agricultural income exceeding a specific threshold. This idea raised alarms among farmers and government officials alike. In 2017, he argued, “There should be no distinction between urban and rural. The threshold for taxing rural agriculture income should be the same as urban income. However, rural agriculture income taxed could be an average of three years as it is subject to weather fluctuations.”
Agricultural Income Tax Exemption: A Historical Perspective
Currently, agricultural income in India is exempt from taxation under Section 10(1) of the Income Tax Act, 1961, allowing farmers to earn unlimited income without paying taxes. The late Finance Minister Arun Jaitley had previously clarified that there were no intentions to tax agricultural income, stating that prosperous farmers are “a very rare institution.”
Debroy challenged this exemption in an opinion piece for The Indian Express, asserting that “amnesia and ignorance hinder effective discourse.” He referenced the legal structure governing agricultural taxation, highlighting that agricultural income was taxed until 1886, a change driven more by anti-colonial sentiment than economic rationale.
State-Level Taxation: A Complex Landscape
Debroy pointed out that several states, such as Assam and Bihar, still tax specific types of agricultural income, particularly from plantations. He remarked, “Unlike the Karnataka Agricultural Income Tax Act (1957), repealed in 2016, I am not aware of these statutes having been repealed.” His analysis suggests that the argument against taxing agricultural income overlooks existing state practices.
Equity in Taxation: Debroy’s Call for Reform
In a 2023 piece for The New Indian Express, Debroy reiterated the necessity for a comprehensive review of untaxed agricultural income. He argued, “Direct taxes are inherently superior to indirect ones, and exempting agricultural income disrupts equity.” He questioned the prevailing narrative about farmers’ poverty since 1947 and critiqued the shift in perspective that emerged after the Green Revolution.
Debroy speculated that the political influence of large farmers led to the current taxation policies. “Perversely, agricultural prosperity, not penury, led to agriculture not being taxed,” he stated. He emphasized that the exemption, initially intended to protect the poor, has instead allowed wealthier farmers to evade taxes.
A Lasting Legacy
Bibek Debroy’s insights and proposals have sparked critical discussions on the fairness of India’s tax system. His advocacy for a reevaluation of agricultural income taxation highlights the complexities of economic policy and the need for equitable solutions. As we remember Debroy, his legacy will undoubtedly influence future economic discourse in India.
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