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The Political Economy of Land Taxation: Interest and Clout

by Dr Akhtar Hossain
***This article examines the land taxation policies in Bangladesh within a political economy perspective. In doing so. it highlights the socioeconomic background of the Members of Parliament in Bangladesh, who were elected in 1970. 1973, 1979 and 1991. It reveals that because the political and bureau cratic-elites in Bangladesh have direct and indirect landed interests, they have allowed the land taxes to disappear over time without imposing any substitute direct taxes on agriculture.**
LAND taxes were a major source of government revenues In the Indian subcontinent during both the Mughal and British periods After the partition in 1947 the importance of land taxes as a source of government rev enues diminished in both India and Pakistan Nonetheless the amount of land tax revenues collected in Bangladesh was substantial until the late 196Os. The share of land tax revenues in lax revenues has sharply declined In Bangladesh since Independence.
Political factors have mainly been responsible for the diminishing importance of land taxes tn Bangladesh The genesis of the decline in land tax revenues was the use of land taxes as a political instrument by the Awami League during the autonomy movement in Bangladesh In the late 1960s In 1972 the Awami League government fulfilled its electoral pledges by abolishing land taxes on holdings of upto 8.3 acres per family. It effectively exempted more than 90 per cent of landholdings from the purview of direct taxation Land tax revenues collected in Bangladesh during 1973-75 were les§ than 1 per cent of tax revenues. Compare It with-the share of land tax revenues in tax revenues of about 15 per cent In the 1969s. Efforts were made later to raise land tax revenues, but the share of land tax revenues In tax revenues remained less than 2 per cent throughout the 1970s and i980s. It indicates that the land/agricultural taxation policies of both the Zia (1976 81) and the Ershad (1982-90) governments were not much different from those of the
• Mujib government. Neither the Zia nor the Ershad government was in a position to withdraw existing tax benefits from the landowners or to impose new taxes on agriculture without considerable political costs. It was the Mujib government which set the economic and political agenda in Bangladesh and formulated the ground rules of politics. The political regimes that followed -the Mujib government did not have the popular mandate to adopt far reaching economic policies. Both the Zia and the Ershad governments were reluctant to give any political advantage to the Awami League, which, although remaining in the political wilderness, has been in a position to challenge the political legitimacy and authority of each of the political regimes In Bangladesh since L975.
■Politicians have been particularly reluctant to antagonise the landowners as the later have considerable clout in the Bangladesh politics. The
article reaches a conclusion that to promote economic growth through agricultural modernisation In Bangladesh land/agriculture should be taxed to raise funds for Investment In the rural sector However, this task should not be left In any corrupt or ineffl dent hand or to the central revenue administration. A properly constituted, super vised and accountable local government at the village level may be capable of collecting land/agricultural taxes for In vestment in the rural economy
I -and/Agricultural Taxation Policies
Land taxes remain a politl cal Issue In Bangladesh Because about 85 per cent of total population In Bangladesh live in the rural areas and al most all of them own farmland and/or homesteads, the Inci dence of land taxes falls on all the rural people It indicates that land taxes have an ability to create passion among the rural people. The filet that the politicians and bureaucrats in Bangladesh have allowed a traditional source of govern ment revenue to disappear over time "without Imposing any substitute taxes on agriculture manifests the sensitivity and importance of land taxes in the national politics. By looking at the class character of political elites tn Bangladesh. one can identify the conflicts of Interests of politicians in land taxation. In fact the continuation of pater 'nalistic agricultural/land taxation policies in Bangladesh manifests a nexus between landowners and politicians.
A politically popular decision. taken by the Mujib government. was the abolition of land taxes on all holdings of upto 8.3 acres per family. All the arrears of land taxes on holdings upto 8.3 acres were also remitted. Such exemp- . tions relieved about 90 per cent of agricultural land and about 99 per cent of rural population from tjje purview of land taxation. Collection of all other taxes and fees, which were related to land taxes but were not abolished, sharply declined In the wake of the abolition of land taxes.
Not only did the Mujib government abolish land taxes on holdings of upto 8.3 acres per family. It was unwilling to Impose higher land taxes on holdings of rich farmers on the-belief that farmers suffered
heavy losses of income and assets during the liberation war and that the time was not opportune for imposing land taxes so soon after indepen dence. Despite such a pretension. It was obvious that the government s decision not to tax agriculture in any form was taken largely for political reasons. Even (hough some farmers incurred losses in income and assets during the liberation war they gained from high prices of agricultural products and from huge subsi dies on agricultural inputs. It appears that the Mujib gov ernment did not want to an tagonise its rural power base by Imposing taxes on land or agricultural income. The government was even reluctant to Impose taxes on the earnings of affluent urban rental proper tyowners
There were only marginal changes in agricultural/land taxation policies In Bangladesh during both the Zia and the Ershad regimes. In 1976. a Land Development Tax Ordinance was passed by which the land and other taxes' were merged together For the" agricultural land, the rate was fixer! at a nominal rate of Taka 3 per acre for households owning upto 8.3 acres of land and of Taka 15 per acre for house holds owning above 8.3 acres of land. In 1982 the rate of land development tax was changed by an Ordinance which made this tax similar to a graduated land tax. Land owning households were classified Into six groups and a higher rate of tax was Introduced on larger landholders. Because agricultural Income taxes became an unimportant source of -revenues for the government. they were merged with j>erson:i1 income ' iv* it the end ol 1970s.
Therefore, it is revealed that Bangladesh does not have a well-designed land/agricultural taxation policy suited to raising tax revenues. The direct tax burden on agriculture has remained low. even when it is compared with direct tax burden on the non-agricultpral sector. The agricultural sector did not pay much indirect taxes either, even though it received huge subsidies on inputs in the 1970s and early 1980s.
Landowners and Politicians
Irt Bangladesh, those who hold political-bureaucratic
power at both the apex and base belong to the landowning class even though they do not necessarily live In the rural areas. Politicians, bureaucrats, and urban professionals gain directly and indirectly from agriculture by holding farm land The prevalence of the extended family system and the Muslim laws of property Inheritance allow also the ur ban politicians, bureaucrats, and professionals to Inherit farm land from their parents and relations generation after generation. Given that land has a seductive attraction in a traditional society, not many absentee landowners are inclined to sell their farm land just because they no longer live in the rural areas. Politicians tn particular have an incentive not to uproot themselves from their ancestral land because wherever they live, they usually get elected from the rural constituencies where they or their parents used to live. Having a landed aristocratic past may Indeed be a major political asset In Bangladesh because In ■ an underdeveloped political system, voters show a certain degree of parochialism and many politicians are eager to beat it up to maximise their political gains.
It was not merely the nostalgic childhood memory and the rural upbringing of the Awami League politicians that made them sympathetic to landowners, they themselves were the direct beneficiaries of the low tax burden on agriculture. Given that the average size of farm in Bangladesh was roughly 2.5 acres in the early 1970s. about 90 per cent of the Awami League Parliamentarians elected In 1970 and 1973 owned land above the average farm size. Importantly, about 55 per cent and about 60 per cent of the Awami League Parliamentarians elected respectively in 1970 and 1973, held 10 acres or more land It indicates that the Awami League Parliamentarians In 1970 and 1973 benefited di rectly from the low tax burden on agriculture.
Because of the conflict of interests of the Members of Parliament, the Awami League government also did not introduce any effective land reform measures. Even though the Awami League politicians pledged radical land reforms during the autonomy movement in the late 1960s. in 1972 the Mujib government
fixed the celling on landhold ings at 33 acres per family which was exactly the level determined in the early 1950s and there was no at tempt to redistribute land among landless farmers
The Mujib government s land reform measures also served the Interests of the Members of Parliament elected in 1970 and 1973 For example, even though an effective land reform measure would have required a ceiling on landholding of. say. 10 acres or below per family the ceiling on landholding at 33 acres per family benefited about 60 per cent of the Members of Parliament who owned landed property of more than 10 acres. On the whole, the land taxation and land reform policies of the Mujib government benefited the rich and medium farmers, who were the rural power (> ise of the Awami League and Members of Parliament.
The class character of the Zia government was not much different from that of the Mujib government Statistical data reported in the Statistical Pocket Book of Bangladesh 1979 and in an article by Professor Talukder Manlruzzaman of Dhaka University reveal that the socioeconomic background of the Members of Parliament during the Zia government In 1979 was similar to that during the Mujib government in 1973. Detailed information on the socioeconomic background of the Members of Parliament during the Ershad government In 1986 is not available. However, because the Members of parliament of the then ruling Jatiya Party were the deserters from the Awami League. BNP, and other opposition parties, and because the Awami League was the major opposition party in the Parliament, the socioeconomic background of the Members of Parliament during the Ershad government was not much different from that of the Mujib or tha Zia government.
Agricultural Policies of Zia and Ershad
Governments
Even though the Awami League lost its credentials and popularity after the overthrow of the Mujib government In 1975. it was perhaps assumed still powerful enough to challenge the legitimacy and authority of both the Zia and the
Ershad governments. Therefore seemingly, it was able to force both the Zia and the Ershad government to design, adjust and implement econ-, omic policies in a politically defensive manner, in the sense that even though both the Zia and the Ershad governments changed ipost economic poll cies undertaken by the Mujib government. they were con sckAis of the political impll cations of revised or new economic policies As a result, most contentious economic policies, such as agricultural/land taxation and land reforms, did not get priority even though both the Zia and the Ershad governments gave the impression that they were making efforts to mobilise resources from agriculture by changing the taxation and land tenure systems
The taxation policies of both the Zia and the Ershad governments were dictated by their need for political support from particular subsets of the population Contrary to their claims of independence from organised interest groups, both the Zia and the Ershad government were linked with and dependent upon various interest groups. As a result, except for some cosmetic change in taxation policies, there were no serious efforts by the Zia and the Ershad governments to raise tax revenues from any sources The availability of foreign aid softened budget constraints of both the Zia and the Ershad governments.
Instead of raising taxes, cutting expenditures and Improving the performance of the public sector enterprises, both the Zia and the Ershad gov ernments maintained large budget deficits and remained dependent upon foreign aid and loans for development expenditures. Both the soft budgetary policy and the aid based development strategy served the interests of the Zia and the Ershad government as it enabled them to continue with their paternalistic roles towards the vested interest groups of the society Both the Zia and the Ershad governments politically rehabilitated many large landowners, and some of them gained political power locally and were elected to the Parliament. The entry of large landowners at the centre stage of politics made it difficult for both Zia and the Ershad government to enact taxation and land reform policies that might hurt the landowning class
(To tie concluded tomorrow)
The writer is Lecturer tn Economics. University of Newcastle. Australia'