Tackling Agriculture in a Developing Country: A Proposal for India

More effective taxation of agriculture is central to the development issue. An OLS cross-country regression across developing countries shows that every one percent increase in the share of agriculture in value addition lowers the tax/GDP ratio by a little over one-third of one percent, after controlling for shares of imports and services. The paper goes on to argue that agriculture can become possible, if never easy, to tax if it is attempted at the lowest, local level of subnational government. The information vacuum that confounds any attempt to tax agriculture is least formidable at local level, and compliance incentives exist when taxes paid are seen to feed into provision of productivity-enhancing local public goods. The paper provides a feasible design for a simple norm-based crop-specific tax on agricultural land leviable at local level, and provides estimates of the levy range for different regions of India. The recommendation carries general validity even for non-federal developing countries, provided local government institutions exist in rural areas, analogous to those in cities.