Agricultural taxation in Tanzania is a potential area of barriers to trade, if not well planned. To promote agriculture, the government starting from 2000 has been attempting a number of tax incentives that aim at creating conducive investment environment in the agricultural sector and thereby enhancing productivity of smallholder farmers. In 2002 the government abolished development levy.
The tax regime which was put in place between 2003 and 2005 aimed also at implementing the Poverty Reduction Strategy. It includes the following:
(i) The Income Tax Act, 2004
The Act allows full deduction in the first year of income 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.
• 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 percent.
• Tractors and other plants and machinery used for agricultural purposes are subject to high depreciation rates of 50 percent in the first year and 25 percent for subsequent years.
• Businesses producing agricultural produce are not subject to equal quarterly installments payment requirement for income tax purposes but are required to pay their taxes during the third quarter after harvest.
(ii) The Customs Tariff Act, 1976
Under this Act agricultural inputs and implements are subject to zero import duty.
(iii) The Value Added Tax Act, 1997
Under this Act the following measures support agricultural development:
• Unprocessed agriculture and livestock, including unprocessed meat, unprocessed fish and all unprocessed agricultural produce are VAT zero rated;
• Inputs to agriculture and fishing, such as pesticide and fertilizers, as well as agricultural implements are
VAT zero rated;
• VAT zero rating is granted also to crop farmers under co-operatives and producer associations registered for VAT for agricultural produce intended for export.
(iv) The 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.
• 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.
(v) Local Government Finances Act, 1982
Under this Act, multiple charges on agricultural and livestock produce had been rationalized and reduced. This also included the requirements to limit Produce cess to five percent of farm gate price in the 2003 amendments.
Further, through amendments made on 2004, through Finance Act, 2004 (Section 43), the levied cess in the Local governments, were restricted only to the Districts which the product originated and not in the Districts where it passes through or where it is sold in the markets.
Also voluntary contributions collected on agricultural produce by local authorities are allowed only if introduced by the village community for specific projects implemented by the village or villages, not otherwise.
(vi) The Customs and Excise Tariff Act
According to this Act agricultural inputs and implements are subject to zero import duty. There is also no Excise Duty on wine and brandy manufacture from locally produced grapes. The measure is aimed at expanding the market for wine and hence expands wine production.
(vii) The Vocational Education and Training Act, 1994 (VETA)
This Act exempts employees in agricultural farms from Skills Development Levy.
(viii) Crop Industry Acts
Different Crop Industry Acts, used to provide for charging of levies and cess to finance the operations of the Crop Boards, which were considered as nuisance by may stakeholders in the respective crop industries. However, it will be noted below that due to the on-going Crop Boards reforms, cesses and levies charged by the Crop Boards were abolished with effect from first July 2006 by the Government Circular issues on 10 March 2006 by the Ministry of Agriculture, Food Security and Cooperatives.
Problems Associated with Enforcement of Agricultural Tax Laws
The implementation of the above discussed tax incentives to smallholder farmers has been difficult to some areas. For example, some district councils do impose levy or produce cess contrary to what is provided by the law and no punitive measures are taken against them. Apparently this is complicated by the fact that according to the on-going local government reforms, districts have to have a level of dependence on their own sources. Ironically increased levies or cesses are endorsed by the central government, since all the by-laws, including those imposing additional levies are approved by the Minister responsible for local governments.
Some of implied levy are charged through a number of involuntary contributions, normally imposed through school boards or village councils.
Some districts have entered into agreements with regulatory boards to deduct produce cess after auction or marketing of the crops, as is the case of coffee. This is against the Local Government Finance Act, which provides that produce cess has to be charged on the farm-gate price, not after crops have been processed.
There is also a general lack of accountability to farmers/producers on how the collected taxes are used by local governments. This is mainly due to lack of awareness on the side of the farmers20.
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