19 Agricultural in the Context of Globalisation of the Economy UNIT 20 AGRICULTURAL TAXATION AND SUBSIDIES Structure 20.0 Objectives 20.1 Introduction 20.2 Types and Effects of Taxes 20.2.1 Lump-sum Taxation 20.2.2 Per Unit Tax 20.2.3 Ad Valorem Taxation 20.2.4 Tax on the Income of the Producers 20.2.5 Taxation under Imperfect Competition 20.3 Existing Indian Tax Policy for Agricultural Income 20.4 Subsidies 20.4.1 Rationale for Subsidies 20.4.2 Types of Subsidies 20.5 Subsidies: Effectiveness, Extent and Future Problems 20.6 Let Us Sum Up 20.7 Key Words 20.8 Some Useful Books 20.9 Answers/Hints to Check Your Progress Exercises 20.0 OBJECTIVES After going through this unit you will be in a position to: • explain the types of taxation and their impact on output and prices; • appreciate Indian policy towards taxation of agricultural income and the political economy of it; • explain the concept and rationale for agricultural subsidies; and • examine the extent of agricultural subsidies and their impact on agricultural production and pricing. 20.1 INTRODUCTION You may be aware that taxes take away money from people and subsidies give money to people. Naturally, the persons who pay taxes are not necessarily the persons who benefit from subsidies. In that sense taxes and subsidies involve transfer of money between people. The main aims government seeks to achieve through a policy combination of taxation and subsidies are to • generate income for financing its expenditures by imposing reasonable taxes on people who are capable of paying, and • provide support to people who are less endowed and need assistance to carry out their production and consumption activities through subsidies. Thus taxes and subsidies result in a re-distribution of income in the society. Besides these two direct objectives, taxes and subsides affect economic activity in many different ways. As we will see in the following sections, taxes and subsidies affect the price and output levels as well. Therefore, the government should try to formulate tax policies in such a way that is conducive for economic growth and social welfare. Keeping these in mind we may ask the question as to whether the government in India has used these instruments efficiently.
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