Domestic Terms of Trade in Pakistan : Implications for Agricultural Pricing and Taxation Policies

In 2008 the Government of Pakistan agreed with the International Monetary Fund (IMF) to increase the tax/Gross Domestic Product (GDP) ratio by 3.5 percentage points over the medium term. This commitment has rekindled the debate regarding the agricultural income tax. Advocates of an agricultural income tax argue that the sector remains protected by political interests, while opponents to such a tax maintain that agriculture is already subject to significant indirect taxation, mainly because of prevailing price distortions in agricultural product markets. This paper reviews the literature on domestic terms of trade analysis in Pakistan and calculates an updated set of terms of trade indices for agriculture relative to industry. The paper also discusses key issues with regard to the imposition of agricultural income tax in Pakistan, and uses simulation results from a Computable General Equilibrium (CGE) model for the Pakistan economy to analyze the potential effects of the imposition of an agricultural income tax on poverty and fiscal revenues. The results suggest that the domestic terms of trade have remained unfavorable for Pakistan's agriculture during almost the entire 2000-2009 period. Agriculture's terms of trade declined from 2001-02 to 2003-04 before improving only slightly during the period from 2004-05 to 2006-07. As of 2007 however, prices of agricultural commodities started rising resulting in significant increases in agriculture's terms of trade. But in spite of the substantial increases in agricultural prices, the terms of trade for agriculture, though on a rising trend, remained marginally unfavorable to the sector.

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Bibliographic Details
Main Author: World Bank
Language:English
en_US
Published: Washington, DC 2010-11
Subjects:ACCOUNTING, ADMINISTRATIVE COSTS, ADVERSE EFFECT, AGRICULTURAL COMMODITIES, AGRICULTURAL COMMODITY, AGRICULTURAL INCOMES, AGRICULTURAL LAND, AGRICULTURAL OUTPUT, AGRICULTURAL POLICY, AGRICULTURAL PRICES, AGRICULTURAL PRODUCE, AGRICULTURAL PRODUCT, AGRICULTURAL PRODUCTION, AGRICULTURAL SECTOR, AGRICULTURAL SECTORS, AGRICULTURE, AVERAGE HOUSEHOLD INCOME, BASE YEAR, COMMODITY, COMPETITIVENESS, CONSUMER EXPENDITURE, CONSUMERS, CONSUMPTION BASKET, DECOMPOSABLE POVERTY, DEFLATORS, DEVELOPMENT ECONOMICS, DEVELOPMENT STRATEGIES, DISPOSABLE INCOME, DIVIDEND, DIVIDEND INCOME, DIVIDENDS, DOMESTIC MARKET, DROUGHT, ECONOMIC STRUCTURE, ELASTICITY, ELASTICITY OF SUBSTITUTION, EQUIPMENT, EXCHANGE RATE, EXPORT MARKET, EXPORT PRICE INDEX, EXPORT SHARE, EXPORTS, FACTORS OF PRODUCTION, FARM LABOR, FARMER, FARMERS, FISCAL DEFICIT, FOOD ITEMS, FOOD POLICY, FOOD PRICE, FOOD PRICES, FOREIGN TRADE, FRAUD, GDP, GOVERNMENT EXPENDITURE, GOVERNMENT EXPENDITURES, GOVERNMENT REVENUE, GOVERNMENT REVENUES, GROWTH RATES, HOUSEHOLD CONSUMPTION, HOUSEHOLD INCOME, HOUSEHOLD INCOMES, HOUSEHOLD SAVINGS, HOUSING, INCIDENCE OF POVERTY, INCOME, INCOME DISTRIBUTION, INCOME SHARES, INCOME TAX, INDUSTRIALIZATION, INEQUALITY, LAND HOLDINGS, LANDHOLDINGS, LANDLESS AGRICULTURAL WORKERS, LANDOWNERS, LIBERALIZATION, MILK, MONETARY FUND, NATIONAL INCOME, OUTPUTS, PER CAPITA CONSUMPTION, PER CAPITA INCOME, POOR, POOR FARMERS, POOR HOUSEHOLD, POOR HOUSEHOLDS, POVERTY GAP, POVERTY GAP INDEX, POVERTY HEADCOUNT RATE, POVERTY INCIDENCE, POVERTY INCREASE, POVERTY LINE, POVERTY MEASURES, POVERTY REDUCING, POVERTY SEVERITY, PRICE CHANGES, PRICE CONTROLS, PRICE DISTORTIONS, PRICE INCREASES, PRODUCT MARKETS, PRODUCTION FUNCTION, PRODUCTION OF WHEAT, PRODUCTION STRUCTURE, PUBLIC INVESTMENTS, PURCHASING POWER, RATES OF RETURN, REAL INCOME, REMITTANCES, RETURN, RETURNS, RURAL, RURAL AREAS, RURAL HOUSEHOLDS, RURAL POPULATION, RURAL POPULATIONS, RURAL POVERTY, SAVINGS, SKILLED WORKERS, SMALL FARMS, STATE BANK, STRUCTURAL ADJUSTMENT, TARIFF REVENUE, TAX COLLECTION, TAX POLICY, TAX RATE, TAX RATES, TAX REGIMES, TAX REVENUES, TAX STRUCTURE, TAXATION, TAXATION POLICIES, TOTAL OUTPUT, TRADE POLICIES, TRADE SECTOR, URBAN REGIONS, VALUE ADDED, VEGETABLES, WAR, WEALTH, WHOLESALE PRICE INDEX, WHOLESALE PRICE INDICES, WHOLESALE PRICES,
Online Access:http://documents.worldbank.org/curated/en/2010/11/16269211/domestic-terms-trade-pakistan-implications-agricultural-pricing-taxation-policies
https://hdl.handle.net/10986/12448
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Summary:In 2008 the Government of Pakistan agreed with the International Monetary Fund (IMF) to increase the tax/Gross Domestic Product (GDP) ratio by 3.5 percentage points over the medium term. This commitment has rekindled the debate regarding the agricultural income tax. Advocates of an agricultural income tax argue that the sector remains protected by political interests, while opponents to such a tax maintain that agriculture is already subject to significant indirect taxation, mainly because of prevailing price distortions in agricultural product markets. This paper reviews the literature on domestic terms of trade analysis in Pakistan and calculates an updated set of terms of trade indices for agriculture relative to industry. The paper also discusses key issues with regard to the imposition of agricultural income tax in Pakistan, and uses simulation results from a Computable General Equilibrium (CGE) model for the Pakistan economy to analyze the potential effects of the imposition of an agricultural income tax on poverty and fiscal revenues. The results suggest that the domestic terms of trade have remained unfavorable for Pakistan's agriculture during almost the entire 2000-2009 period. Agriculture's terms of trade declined from 2001-02 to 2003-04 before improving only slightly during the period from 2004-05 to 2006-07. As of 2007 however, prices of agricultural commodities started rising resulting in significant increases in agriculture's terms of trade. But in spite of the substantial increases in agricultural prices, the terms of trade for agriculture, though on a rising trend, remained marginally unfavorable to the sector.