Different Measures of Net Farm Income and their Relevance to the Debate on Agricultural Taxation

Net farm income has not been defined appropriately in farm accounts studies in Pakistan. This has led to conflicting views about the profitability of the agricultural sector. To quote a few examples, the Fact Finding Committee (1969) concluded that “with the present high costs of production, farming has not remained a profitable enterprise [Government of West Pakistan (1969)]. Syed (1972) found a reasonably high average net income per acre for irrigated areas in the Punjab [Rs 347] but qualified his finding by the reservation that “for any scientific assessment of returns from farming enterprise, allowance has to be made for family labour, and interest and depreciation on capital investment”. He, therefore, recalculated net income on ‘business lines’ and found it to be only Rs 62 per acre. Bucha (1972) endorsed Syed’s recalculation of net income on business lines and concluded that “the average income from farming is inconsiderable despite the increase in yields and rise of price”. Khan (1978), however, reported a much higher income per acre and unlike Syed did not qualify his estimates by any reservations. According to him, the average net income per acre ranged between Rs 354 for Mexi-Pak wheat and Rs 1,515 for sugar-cane in the Punjab. The National Taxation Reform Commission (1986) reported that average net income per acre was only Rs 109 in the Punjab and Rs 84 in each Sindh and the NWFP. Ahmad and Chaudhry (1987) concluded that net income per acre was negative in irrigated areas in the Punjab. Lately, the Punjab Economic Research Institute (1988) have reported an average net farm income of Rs 322 per cropped acre in the irrigated Punjab.