The Problem of Agricultural Taxation in West Pakistan and an Alternative Solution: A Comment (Notes & Comments)

In the Summer 1973 issue of the Pakistan Development Review,Mr. Mohammad Ghaffar Chaudhry [1] has dealt with two very importantissues relating to the intersectoral tax equity and the intrasectoraltax equity within the agricultural sector in Pakistan. Using a simplecriterion for vertical tax equity that implies that the tax rate riseswith per capita income such that the ratio of revenue to income rises atthe same percentage rate as per capita income, Mr. Chaudhry found thatthe agricultural sector is overtaxed in Pakistan. Mr. Chaudhry furtherfound that the land tax is a regressive levy with respect to the farmsize. Both findings, if valid, have important policy implications. Inthis note we argue that the validity of the findings on intersectoraltax equity depends on the treatment of water rate as tax rather than theprice of a service provided by the Government and on the shiftingassumptions regard¬ing the indirect taxes on imports and domesticproduction levied by the Central Government. The relevance of thefindings on the intrasectoral tax burden would have been more obvious ifthe tax liability was related to income from land per capita.