Theory of optimal taxation and current tax policy in Pakistan's agriculture

Abstract

The present paper intends to devise an optimal tax structure for agriculture in Pakistan. In doing so, the paper highlights the principles of optimal tax theory and uses them to suggest an appropriate tax policy for agriculture. The paper recommends a tax system comprising a simple land tax and a tax on marketed surplus of agricultural produce. The optimality of the system lies in the progressiveness of the tax system without undue burdens on any class of farmers; risk aversion, larger revenue yields and savings in collection costs; price and income-elastic tax system; administrative ease in the assessment and collection of taxes and, above all, little scope for tax evasion and avoidance.