TAXATION REGIME FOR AGRICULTURE IN TANZANIA
While tabling the 2004/05 Government Budget to the Parliament the Minister for Finance charted out a number of tax reform
proposals aimed at promoting agriculture. The Minister first described the current agricultural tax regime, and then
went on to state the new measures.
Unfortunately, a number of articles in the press have tended to mix up the two scenarios, and have
reported both of them as new measures. This has somewhat confused the situation as to what is the applicable regime. In the
light of the situation, it has been found reasonable to make some clarification.
2.0 Measures to promote agricultural sector before 2004/05 budget
To promote agriculture the Government had put in place a tax regime, which is conducive to investment in the sector and enabling to productivity of small-scale farming. The setting of enabling environment for agricultural development was in line with the Poverty Reduction Strategy. The predominance of agricultural output in GDP and its massive share of employment to total workforce make it an important ingredient for the strategy's success. The tax regime that had been put in place before the FY 2004/05 in recognition of the central role of agriculture in poverty reduction initiatives include the following:
2.1 Under the Income Tax Act, 2004
The income tax regime obtaining for agriculture contained the following measures aimed at promoting agriculture:
- Full deduction in the first year of costs incurred in course of clearing of farming land, excavation of irrigation canals, cultivation of perennial crops and planting trees for farming land to prevent soil erosion. Under normal arrangements these are capital expenditures and would be subject to long term deductions, but in the Income Tax Act 2004 they are immediately deductible.
- Costs incurred in the course of environmental conservation for farming land, animal husbandry, fish farming or restoration of the land to normalcy after use are immediately deductible in assessing taxable income.
- Research and farming land development expenditures are also immediately deductible for income tax purposes.
- Irrigation tools and machinery are categorized class II of assets to qualify for a high depreciation rate of 25%.
- Tractors and other plants and machinery used for agricultural purposes are subject to high depreciation rates of 50% in the first year and 25% for subsequent years.
- Businesses producing agricultural produce are not subject to equal quarterly installment payment requirement for income tax purposes but are required to pay their taxes during the third quarter after harvest.
2.2 Under Customs Tariff Act, 1976
- Agricultural inputs and implements are subject to zero import duty rate.
2.3 Under Value Added Tax Act, 1977
- Unprocessed agriculture and livestock, including unprocessed meat, unprocessed fish and all unprocessed agricultural produce is VAT exempt
- Inputs to agriculture and fishing, such as pesticide and fertilizers, as well as agricultural implements are VAT exempt
- VAT zero rating is granted to crop farmers under co-operatives and producer associations registered for VAT for agricultural produce intended for export.
2.4 Under Stamp Duty Ordinance (CAP 332)
- Agriculture, livestock and fishery produce are exempt from Stamp Duty on receipt. In addition, Stamp Duty on markets for agricultural produce is remitted.
2.5 Under Local Government Finances Act, 1982
- Multiple charges on agricultural and livestock produce had been rationalized and reduced including the requirements to limit Produce Cess to 5% of farm gate price.
2.6 In Government Expenditure Budget
- The Government has placed agriculture on priority expenditures list and increased budgetary allocation to the sector.
- Government funds allocation to Credit Guarantee Scheme has been strengthened to enable wider access to the scheme by co-operatives and other purchasers of agricultural crops.
3.0 Measures to promote agricultural sector in the 2004/05 budget
The 2004/05 budget emphasizes the Governmental resolve to ensure improved investment and productivity in agriculture: with the object of increasing employment, food sufficiency, poverty alleviation and exports. Tax policy reform measures charted out in the 2004/05 Government budget, in particular, were directed towards provision of more incentives to investment flow to the agricultural sector to ensure proper exploitation of the vast unutilized land, generating additional employment in rural community and improving productivity in industries producing agricultural inputs. These include:
3.1 Measures to promote large Scale Farming
- Introduce 100% first year capital allowance for plant and machinery used in agriculture. The measure is aimed at attracting investment in agricultural technology.
- Reduce the stamp duty rate on conveyance of agricultural land to a nominal amount of Tshs 500, in order to reduce costs in conveying land ownership.
- Exempt employment on agricultural farms from Skills Development Levy
3.2 Measures to Promote Small Scale Agriculture and Livestock farming
- Local Authorities were urged to adhere to the measures undertaken in 2003/05 budget aimed at improving earnings for small scale farmers and livestock keepers by not collecting taxes and levies outside those enlisted in the Local Government Finances Act, 1982 as per rationalized schedule.
- It is emphasized that Produce Cess should not exceed 5% of the respective produce's farm gate price.
- In the light of various voluntary contributions local authorities charge on farm produce, it is emphasized that such contribution be charged by the village community only if they are specific and the related project implemented by the respective village or villages.
3.3 Measures to Promote Industries for Inputs for Agriculture and Fishing
- Supplies by industries producing inputs for agriculture and fishing produced and consumed in local market, such as
pesticides and fertilizers, are zero-rated to enable the producers to reclaim input VAT incurred in the course of production.
The measure is aimed at generating enabling environment for investment In the production of agricultural inputs.
3.4 Measures to Promote Industries for Processing Agriculture and Fishing Produce
- Abolish Excise Duty on wine and brandy from locally produced grapes. The measure is aimed at expanding the
market for domestic wine and hence expand grape and wine production
- Exempt processed tea (black tea) and packaged tea from VAT
4.0 The Combined Effect of the Tax measures for Agriculture
4.1 Under the Income Tax
- 100% first year capital allowance for plant and machinery used in agriculture, including irrigation tools and equipment. The measure is aimed at attracting investment in agricultural technology.
- 100% deduction for capital expenditure on land clearance, excavation of irrigation canals, cultivation of perennial crops and planting trees on agricultural land to prevent soil erosion. Formally these are capital expenditures and would be subject to long time deductions
- Costs incurred in the course of environmental conservation for farming land, animal husbandry, fish farming or restoration of the land to normalcy after use are allowable deduction in assessing taxable income.
- Agricultural businesses are not subject to the equal quarterly installment payment requirement for income tax purposes but are required to pay their taxes at the end of the thir1 and fourth quarter after harvest.
- Agricultural research and development expenditures are also deductible as expenses for income tax purposes.
4.2 Under the Value Added Tax
- Unprocessed agriculture and livestock, including unprocessed meat, unprocessed fish and, all unprocessed
agricultural produce is VAT exempted
- Industries producing inputs for agriculture and fishing such as pesticides and fertilizers, are zero-rated to enable
producers reclaim input VAT incurred in the course of production. The measure is aimed at generating enabling
environment for investment in the production of agricultural inputs. Imported inputs remain VAT exempted.
- Exempt processed tea (black tea) and packaged tea from VAT, to provide competitive edge to local tea producers.
- Small agricultural produces whose produce is exported many receive VAT rebate through their Cooperative Union or
4.3 Under the Customs and Excise Tariff Acts
- Agricultural inputs and implements are subject to zero import duty rate.
- There is no Excise Duty on wine and brandy manufacture from locally produced grapes. The measure is aimed a
expanding the market for wine and hence expand wine production.
4.4 Under the Stamp Duty Ordinance
- Reduce the stamp duty rate on conveyance of agricultural land to a nominal amount of T.shs 500, in order to reduce cost in conveying land ownership.
- Stamp Duty on receipts has been abolished for all receipts including on sale of agriculture produce.
4.5 Under the Vocational Education and Training Act (VETA)
- Exempt employment in agricultural farms from Skills Development Levy.
4.6 Under the Local Government Finances Act
- Agricultural produce cess limited to 5% of the farm gate price and within the district of production.
- Voluntary contributions collected on agricultura1 produce by local authorities accepted only if introduced by the village
community for specific projects implemented by the village or villages.
The Government recognizes the important role agriculture plays in its poverty reduction strategy. It is the intention of the Government to continue increasing allocation of fund to the sector aimed at promoting it. From time to time, the Government will review its polices, including fiscal policy, in order to create an enabling environment for transformation and modernization of sector. We expect each stakeholder will provide the necessary co-operation to ensure that the Government initiatives produce the desired results.
This notice is published to clear the apparent confusion on the fiscal regime now applicable to agriculture, fishing, animal husbandry and foresting subsections.
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