By ADAM IHUCHA
Tanzania intends to impose tax on fundamental 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 mechanization will be removed, from the list of
the value added tax zero-rated items, through the VAT Tax Bill of 2013.
The VAT bill,
will only exempt 17 items. Fertilizer is among the items to be removed from the
VAT exemption.
This means
that a fertilizer which already considered expensive to most smallholder
farmers, will soar to Tsh 94,400, up from Tsh 80,000 per 50 kg bag at the
moment.
Main fertilizer types used in
Tanzania are Nitrogen, Phosphates; Rock
Phosphate and Potassium:
Fertilizer plays a vital role in increasing agricultural
productivity as is envisaged by the Tanzania’s Agricultural policy, which
encourages and promotes increased fertilizer use by farmers.
However, the level of fertilizer use in Tanzania is as low as 7 kgs nutrients per ha, compared to 27 and 53 kgs nutrients per ha for Malawi and South Africa respectively.
However, the level of fertilizer use in Tanzania is as low as 7 kgs nutrients per ha, compared to 27 and 53 kgs nutrients per ha for Malawi and South Africa respectively.
However, Abuja declaration emphasized that African
fertilizer consumption should reach a minimum of 50 Kg 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
infrastructures including greenhouses and
packaging
materials of all kinds.
If the bill sails through it will mean standard 18 per cent
VAT on the agricultural inputs, translating into higher costs of production,
less investment, decline in production and food insecurity, against Maputo
declaration.
Farmers say that the move will discourage agricultural
mechanization, make the country less attractive to investors; local produces
uncompetitive in the world market and drive 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).
Amani Temu, a local farmer says that the efforts by key
development partners to introduce modern technology with an eye to transform
the key economic sector would be useless.
“Its pity because farmers have been introduced to modern
farming technologies that, if the bill becomes law, would not afford to
purchase” Mr Temu said.
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 VAT Act 2012 which provides tax exemptions on all agricultural
inputs, casts serious doubts on the government’s commitment to modernize the
agriculture industry” Tanzania Horticulture Association (TAHA) Executive
Director, Ms Jacqueline Mkindi noted.
Exemption list
The proposed exemption list under the third schedule
contains only 17 agricultural inputs such as tractors, planters, harrows,
combine harvesters, fertilizers 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 in transforming the agricultural sector.
“Generally,
this move, which proposes to omit almost all of the important agricultural
inputs, will substantially discourage many investors both local and
foreign to invest in agriculture and especially horticulture” chipped in TAHA
policy and Advocacy Manager, Anthony Chamanga.
Indeed, the
proposed changes will only add to the many taxes and fees already existing in
the agricultural 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 current on top of in the national development agenda.
For example,
VAT will lead to the increase of the costs of accessing seeds, thus unfairly
grabbing farmers the rights to access new seed varieties -- especially hybrid
which are generally already expensive.
“These hybrid
varieties are already expensive, and VAT just further increase the cost.
The improved varieties are important in increase crop yield thus
improving farmers’ welfare “he noted.
Introduction of VAT will also drive inflation and cost of
living jump by more than 18 percent especially because the farm inputs are
taxed.
These taxes will be translated to the food prices.
An independent consultant on economic management, Balozi
Morwa says the economic cost of imposing VAT on
agricultural inputs is more than marginalization of the agriculture sector.
“Poor rural farmers will not be able to break out from their
current trajectories and make substantial progress on their farms” Mr Morwa
said.
With higher influence of agro product in the country
inflation, imposition of tax on the agro-inputs will have a multiplier effect
to the pricing of agro-products.
He said that VAT could cheer up domestic grain prices, given
its strong consumption linkages with other sectors, prevailing agricultural
trade policies and poorly functioning markets within the region.
“This increase in prices would not benefit consumers and
poor people in the country, but it would slow growth in agricultural income
thereby contribute to failure of the road outcomes of poverty alleviation” Mr
Morwa noted.
Agriculture in Tanzania accounts for 28 percent of the
country’s GDP and employs 80 percent of its labor force. The sector is also an
important source of export revenues.
Despite its significance to livelihoods and to the overall
macro economy however, Tanzanian agriculture remains hampered by widespread
underinvestment.
As a result it continues to operate largely at subsistence
levels and its potential to bring commercialization to scale remains for the
most part unrealized.
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