TANZANIA GOVT PLANS TO TAX BASIC AGRO-INPUTS

The government intends to impose tax on basic agricultural inputs, casting a serious doubt on its commitment to transform the key economic sector.

Over 300 essential modern agricultural technologies and supplies critical for farming mechanisation will be removed from the list of the value added tax zero-rated items, through the Vat Tax Bill of 2013.

The Vat Bill, to be brought to the National Assembly in 2014, will only exempt 17 items. Fertiliser is among the items to be removed from the list.

This means that fertiliser, which is already considered expensive by most smallholder farmers, will soar to Sh94,400 up from Sh80,000 per 50kg bag.

Main fertiliser types used in Tanzania are Nitrogen, Phosphates; Rock Phosphate and Potassium.

Fertiliser plays a vital role in increasing agricultural yields as is elaborated in the country’s agricultural policy, which encourages and promotes increased fertiliser use by farmers. However, due to its high costs, the level of fertiliser use in Tanzania is as low as 7kgs nutrients per hactare, compared to 27 and 53kgs nutrients per hatare for Malawi and South Africa respectively.

However, the Abuja declaration emphasises that African fertiliser consumption should reach a minimum of 50kg of nutrients per annum.

Other items to be omitted from VAT exemption include irrigation and water harvesting technologies, pest management products such as plant protection substances, especially chemicals and biological control agents.

In the list there are special planting materials like plastic bags and seed trays, storage, post-harvest and cooling facilities and equipment such as refrigerators, materials for construction and expansion of farm infrastructure including greenhouses and packaging materials of all kinds.

If the bill sails through it will mean a standard 18 per cent VAT on agricultural inputs, translating into higher costs of production, less investment, decline in production and food insecurity, a move that will be totally against the Maputo Declaration.

Farmers say that the move will discourage agricultural mechanisation, make the country less attractive to investors; local produce will become uncompetitive in the world market and will drive an inflation upsurge. Indeed, food contributes 55.9 per cent weight on the country’s basket of goods used to measure inflation – the consumer price index (CPI).

Mr Amani Temu, a local farmer says that efforts by key development partners to introduce modern technology with an eye to transform the key economic sector would be usel

“It’s a pity because farmers have been introduced to modern farming technologies so, if the bill becomes law, would not afford to purchase,” Mr Temu told BusinessWeek.

It is understood, USaid has invested $50 million in the past five years to support smallholder horticultural growers, among others, infrastructural development and introduction of new technologies.

“Honestly, the VAT Bill 2013 which will repeal the third schedule of the VAT Act 2012, which provides for tax exemptions on all agricultural inputs, casts doubts on the government’s commitment to modernise the agriculture industry,” Tanzania Horticulture Association (Taha) executive director, Ms Jacqueline Mkindi told BusinessWeek.

Exemption list

The proposed exemption list under the third schedule contains only 17 agricultural inputs such as tractors, planters, harrows, combine harvesters, fertiliser distributors, liquid and powder sprayers for agriculture.

Other items include spades, shovels, mattocks, picks, hoes, forks, rakes and axes, which experts say are not as important as the materials that have been left out – such as irrigation technologies and planting materials.

For many, hand hoe, mattocks and axe for example, which are given VAT exemption under this bill are not important tools especially during this time when the nation is endeavouring to transform the agricultural sector.

“Generally, this move, which proposes to omit almost all important agricultural inputs, will substantially discourage many investors both local and foreign to invest in agriculture and especially in horticulture,” chipped in Taha policy and advocacy manager, Mr Anthony Chamanga. Indeed, the proposed changes will only add to the many taxes and fees already existing in the sector.

For instance, today, a registered business in horticulture deals with more than 10 regulatory institutions, and pays taxes and fees of more than 20 different types.

Mr Chamanga also argues that removing exemption to agricultural inputs will tremendously increase costs of production especially for smallholder farmers.  In addition, it is believed that VAT will slow down the process of agricultural transformation, which is currently on top of the national development agenda.

For example, VAT will lead to the increase in the cost of seeds, thus unfairly hindering farmers to access new seed varieties -- especially hybrids, which are generally already expensive.

Source: http://www.thecitizen.co.tz/magazine/business-week/Fear-mounts-as-govt-plans-to-tax-basic-agro-inputs/-/1843772/2118380/-/105g55j/-/index.html