Interdisciplinary Public Finance, Business and Economics Studies - Volume II

2 The Role of Income Tax in Taxation of Agricultural Sector

In taxation of agricultural sector, there are three types of taxation. These are taxation of agricultural incomes, taxation of goods and services that the people in agricultural sector consume and taxation of agricultural land (Görgün, 1973; Lewis, 1976).

Taxation of agricultural sector is inevitable especially in the countries in which agricultural sector occupies a big place in the economy and the taxes to be collected also need to have some special properties. Therefore, a taxation system to be established for agricultural sector should provide the necessary resources for public services and industrialization and also contribute to solve the problems in the traditional structure in agricultural sector. The first objective, that is, funding, depends on conditions such as the ultimate use of agricultural land, the use of current technology and increasing the productivity per labour. Second objective of the taxes in agricultural sector is to change the traditional structure of agriculture. Here, the traditional structure refers to the following two points. First one being ownership structure of agricultural land and second one the diverse action and reaction relationship between market mechanisms and agricultural sector. These factors, on the one hand, prevent potential agricultural production, and, on the other hand, prevent the economic and political development of the system. Therefore, these related problems in traditional structures should be solved as soon as possible (Önder, 2012).

As long as agricultural sector is not charged with tax obligation in order to realize the objectives above, it will take a longer time to solve the problems in traditional structure and the necessary resources will not develop automatically in agricultural sector. Because when this sector, which has not yet been paid for, or has a very weak relationship with the market, is left alone, it develops quite slowly. The resources created with this way will be used by various bodies ineffectively in pieces. However, it is necessary to create value surpluses in agricultural sector as well as to collect these surpluses in small, integrated pieces, that is, without broken pieces. Therefore, on the one hand, finance of public services on the other hand, creating resources for industrialization necessitate the application of direct taxation in agricultural sector (Önder, 2012).

However, the principle of universality besides the principle of justice in taxation also necessitates the taxation of agricultural incomes within income tax (Feyzioğlu, 1954). In addition, the fact that income tax cannot cover the agricultural sector facilitates the income items to be concealed in other sectors, and this is the main factor for low income tax efficiency. Therefore, it will be appropriate to tax the agricultural sector – despite the troubles it has – within the income tax system (Yaşa, 1965).

In fact, income taxation has many various beneficial aspects. Through this system, taxation is attributed to the concept of income which is the best sign of taxation capacity. As long as applied well, we can obtain a highly flexible taxation type and therefore an important tool for the redistribution of the income and the struggle against inflation or deflation. In addition, this system enables the opportunity to regulate the taxation better in terms of promoting effects, social justice and some other purposes (Yuluğ, 1968).

As is seen, although income tax application in agricultural sector is an ideal and modern method, it has also some troubles for especially underdeveloped countries.

3 Taxation of Agricultural Sector in Turkey Within Income Tax

The largest tax reform of the Republic Period was realized with Income Tax System in 1950. ITL, Corportae Tax Law (CTL) and Tax Procedure Law (TPL) are parts of this reform (Yücelik, 1971). However, here, agricultural incomes were excluded from income tax. Technical difficulty in direct taxation of agricultural incomes, the desire for not decreasing the success of income tax reform and the political thoughts during the transition to multi-party system had an effect in this decision (Yaşa, 1965). That being said, excluding the agricultural sector forming more than 40 % of the national income was severely criticized especially in terms of tax competition.

Agricultural sector was firstly included in the system by the Law numbered 202 in 1963. Therefore, agricultural sector was not subject to income taxation in the period until 1925 after abolishing the tithe, ignoring the fact that Soil Products Tax was not regarded as a successful application between 1943 and 1946 (Önder, 1988).

Besides real taxation system, some methods such as small farmer exemption, agricultural income exception, lump sum basis, lump sum basis for the determination of expenses and tax cut were applied within different taxation policies in taxation of agricultural incomes since the past (Taşdelen, 2010). According to the Law numbered 4369 enacted with the amendment made in 1998, the method of stoppage at source (tax cut) is adopted today as the main principle in taxation of agricultural incomes. However, real taxation system was accepted for the farmers who exceeded the business size and the standard of agricultural motor vehicle. In order to tax a farmer according to real taxation system, it is sufficient to exceed one of the standards: the business size or the agricultural motor vehicle (Şenyüz, Yüce and Gerçek, 2013).

Tax stoppage at source is included in 94th Article of ITL. Accordingly, while tax responsible persons and corporations are purchasing their agricultural products, they have to make stoppage at source at the rate indicated in the law during the payment on account or in cash. However, there is no tax cut in the purchases for special needs. Tax cut rates from different agricultural activities are regulated in 11th item of 94th article of ITL as following: