General Overview of Agricultural sectorAgriculture is the main stay of the majority

of people, especially in the rural areasprovides employment to about 70% of the

total labor force.Contributes 23.7 percent of the Gross

Domestic ProductContributes 34 percent of export earningsProvides 95 percent of domestic food

requirement.

Sector performance... Cont’dAgriculture sector has been growing at an

average rate slightly above 4% which is above population growth of 2.8% but below Comprehensive Africa Agricultural Development Programme (CAADP) and the Five Year Development Plan 2011/2012 -2015/2016 envisage annual growth rate of 6%.

No substantial contribution to the reduction of rural poverty levels;

The decline in sector contribution to GDP is indicative of inherent problems facing the sector.

Unpredictable policies and multiplicity taxes and levies are among the most setbacks for the sector decline.

LIST IF AGRICULTURAL TAXESFire inspection/certificate Health inspection (OSHA)Water Use feeCertificate of ConformityService levyProduce cessPlant Import PermitPhytosanitary certificate Radioactivity analysisSUMATRA fee (transportation of products in containers)

Chemical importation permitImmigration (CTA)Holiday/entry visaImmigration (work Permits)Land rentVAT on punnets and other packaging materialsFertilizer registrationFertilizer testing

PAYEParking feesExcise dutyVehicle inspection feesFuel levy Health inspection - LGAsBusiness licenseTFDA inspection feesTFDA registration fees Seed inspectionVariety registrationCertificate of seed testingCertificate of seed import/exportPension FundCrop inspectionPlant quarantine inspection Skills Development Levy

Issue 1. Health Inspection fees:

OSHA medical examination services can cost as much as TZS 45,000 per one worker which is to be done 3 times a year regardless of the number of workers in the farm/business. This high rate reduces employees access to such services. This is supported by the CAG’s report 2013 which shows that only 34% employees were inspected for health in three years period (2009-2012).

Proposal: Reduce the inspection rate to TZS 10,000 to make them

manageable to all businesses and for the benefit of the employees safety and health in their workplaces and hence improve compliance to the law.

Issue 2: Fire levyThe Law (Fire and Rescue Act Cap. 427 of 2008)

requires fire rescue services to be provided customers/clients at their work places.

Farming activities are located very far from the fire stations which are always in Towns and Cities, this service is not relevant to farm operations even though there may be such a requirement.

Proposal: Do not charge any fire service fees in farm businesses unless such services are brought to their vicinity.

Issue 3:Property Tax

In the course rural-urban reforms, there are farms which automatically have been transformed into township.

In these farms there are houses which used to serve farm workers accommodation

With the criteria of these houses being closer to towns, are liable to be charged property tax.

ProposalExempt from property tax because they are not used for

business purposes.

Issue 4:Road toll (Fuel Levy)

The Government is charging road tolls/fuel levy for farm operations while no services provided to these farms operations in terms of road maintenance in the farm.

This increases the cost of doing business unnecessarily and does not reflect value for money.

Proposal:Remove road toll for farm implements such as

tractors and other machineries because farm roads are constructed and maintained by the businesses themselves.

Issue 5:VAT RefundDelays in VAT refund ties investment capital

and causes serious cash flow problems to companies in the agricultural sector

Proposal VAT refund should be effected prompt.

Issue 6: Produce CessThe rate charged is too high, thus significantly

increasing cost to crop production. Farmers pay 17 times more [0.3% vs 5%];

Pay whether enterprise made a loss or profit;Poor administration- collection methods• it is a disincentive to increased production • Reduces farmers’ income; • It distorts the market as buyers prioritize LGAs

with lower produce cess • Is a disincentive to private sector investment; • ,

Produce CessProposal: Abolish in stages - Initially and Equalize to 0.3% of turnover Standardize countrywide Improve collection mechanism vastly. Reference to 2014/2015 Government Commitment to G8JUSTIFICATIONFacilitate expansion of crop production and attract new

investments in the agriculture sector which would lead to attainment of food security

Additional income to farmers, thus contributing to the reduction of rural poverty.

The income to be earned will help in improving standard of living that will contribute to the reduction of the high rate of rural-urban migration.

Produce CessPROPOSAL FOR GOVT REVENUE DEFICIT RECOVERY

Deficit will be covered by tax from increased crop production through corporate tax and Pay As You Earn which will be allocated to Local Government Authorities.

AFFECTED TAX PAYER (S)Farmers/ Local Government Authorities

Issue 7: Land rentLevy charged have been increased from Tshs. 200

to Tshs. 1000 per acre and 10,000 in urban areas. This increase will significantly increase the cost of expanding and establishing new large farms as large farms requires sizable land.

Justification for proposal:The Levy goes contrary to the commitment and

objectives of Kilimo kwanza and Big Results Now initiatives which aim at transforming Tanzania into a low cost agricultural products producer, a requirement for survival in the world emerging economic environment. 

Land RentLand is a Factor of Production in AgricultureVery discriminatory [Only titled land 2% pay the tax]Raised without a basis on how much is the turnover

for agribusinessesProposalGo back to 200/= NOW. Eventually Abolish on

Agriculture/ Livestock. Ministry of Lands should not be direct beneficiary.Let TRA the collect the land rent. Subject the Policy

Decisions to Regulatory impact Assessments (RIA) to ensure practical policies.

Issue 8: Skill development LevyThe Finance Act 2013 provides for amendment to

the Vocational Education and Training Act (Cap.82) as follows: 

Section 14(2) of the Act is amended to reduce the Skills and Development Levy from 6% to 5% of the gross monthly emoluments payable by the employer to all employees is respect of that month.

Section 19 of the VETA Act which provided for exemption from the levy was amended to provide exemption from the levy only to any Government department or Public institution which is wholly financed by the Government.

Skill Development LevyMinistries of Finance(MOF), Agriculture,

Food Security and Cooperatives (MAFC) and Tanzania Revenue Authority (TRA) were approached through meetings /letters on the issue of restoring SDL exemption in the agriculture sector (production).

ACT was informed that SDL exemption in the agriculture sector (production) was erroneously left out in the Finance Act 2014.

Skill Development Levy (contd)Agreement reached was to suspend SDL

charges in all large scale production and amend the Finance Act 2014 in November 2014.

Amendment of the Finance Act 2014 was not effected and now has began to send charges to the large scale farms.

Proposal Restore SDL exemption in the agriculture

sector (production) and amend the Finance Act 2014 accordingly.

Skill Development LevyJustificationAccording to BRN Taxation Lab held in April

2014 agriculture sector is faced by multiple taxes (about 35 different taxes). On the average these big farms use about 9 percent gross incomes in taxes. This does not include corporate tax.

The agriculture sector does not directly benefit from VETA services

The large farms are labour intensive (employs from 300 to 6,000 workers) therefore most farm income is used for payment of salaries) depending on the size of the farm.

PROBLEM/JUSTIFICATION

The current EAC CET is not working for either consumers or sugar producers because -

A common external tariff is not paid on all imports, enabling importers to offer imported sugar to the market at disruptively low prices. 

Import levels exceed consumption less net domestic supply, leading to oversupply of the EAC market, further disrupting normal price determination.

The current CET applicable to sugar may be too high, necessitating duty rebates in order to ensure that deficit markets can be supplied by imports from the world markets.

Issue 8: Sugar Chapter 17.01 CET Rate:100% of CIF value or $200/MT whichever is higher

Sugar Chapter 17.01 CET Rate:100% of CIF value or $200/MT whichever is higher PROPOSED TARIFF RATE(S) A customs duty based on a reference price system (RPS),

where the duty is calculated as the difference between a fair domestic sugar price (industry cost of production plus a reasonable return on investment) and the world price for sugar (NY #11 settlement price).

A reference price system (RPS) is more stable than a local currency reference price, as all domestic duties are calculated off the same basis. Normally regular inflation-driven adjustments are not required, as it should be accounted for in the exchange rates.

The reference price should be equitable to the cost of production of EAC produced sugar, including cost of production of sugarcane, and a fair return on investment.

The reference price should be calculated in local currency and converted into US$ to compare against the NY #11 settlement price for raw sugar on the world market.

Sugar Chapter 17.01 CET Rate:100% of CIF value or $200/MT whichever is higherThe duty thus obtained will be levied in local currency. The appropriate tariff should be applied to ALL imports to

avoid market disruption caused by duty-free imports.Adjustments in the applicable customs duty should be

triggered by pre-determined movements in the world price for sugar (for example if the 20 day moving average world price [NY # 11 price] for sugar moves by more than US$ 10 over a 20 day period, an upwards or downwards adjustment is triggered).

The impact of the reference price system (RPS) should be reviewed annually to ensure continued effectiveness given inflationary pressures inherent in production costs.

Sugar Chapter 17.01 CET Rate:100% of CIF value or $200/MT whichever is higherEXPECTED OUTCOME/BENEFIT A reference price system (RPS) allows all market

participants, importers as well as EAC producers to compete at fair prices.

If set at an appropriate level, the reference price system (RPS) will establish a preferential market for all sugar producers in the EAC, and at the same time allows deficits to be sourced from the world market at competitive terms.

Import-driven price volatility can be avoided by applying a reference price system (RPS) that is responsive to changes in the world price for sugar.

Appropriate tariff protection for the sugar industry will incentivize production expansion and investment in downstream value addition (sugar refining)

Sugar Chapter 17.01 CET Rate:100% of CIF value or $200/MT whichever is higherPROPOSAL FOR GOVT REVENUE DEFICIT RECOVERY

No Revenue Deficit. As shown in Annexure 1, the Government would

have earned a total of Tshs. 238.2 billion in the past three years (2009/10 - 2011/12) if the reference price system (RPS) had been in place compare to total earning of Tshs. 5.7 billion generated under existing ad-valorem tariff system

AFFECTED TAX PAYER (S)Sugar Producers/ Sugarcane growers/ Importers/

Consumers

Issue 9: Industrial Sugar Rate 10%

PROBLEM/JUSTIFICATION Significant quantities of industrial sugar are

imported each year against the industrial requirement for refined sugar enters the direct consumption market without any industrial processing.

When the tariff applied to sugar imports for direct consumption is higher than the fixed tariff rate of 10% for industrial sugar, the parties engaging in selling industrial sugar into the direct consumption market are clearly enjoying an unfair advantage over the domestic sugar producers.

Industrial Sugar Rate 10% Justification for proposal: Without an appropriate tariff level that would

discourage the cross-over of industrial imports into the direct consumption market, imported industrial sugar would make worse the excess importation experienced over the last years, thereby compounding the problems of the domestic producers and growers.

PROPOSED TARIFF RATE(S)  A customs duty based on a reference price system

(RPS)

Industrial Sugar Rate 10%EXPECTED OUTCOME/BENEFITAppropriate tariff for industrial sugar will encourage

production of refined sugar locally as Domestic producers will be protected from subsidized refined sugar from the world markets.

Successfully deal with the problem of cross-over of industrial imports into the direct consumption market that contributes to excess importation of sugar.

PROPOSAL FOR GOVT REVENUE DEFICIT RECOVERY

No Revenue Deficit. (Annexure 2).AFFECTED TAX PAYER (S)Sugar Producers/ Importers/ Industrial users.

Issue 10: Withholding Tax on DividendsRate: 5-10%

PROPOSED TARIFF RATE(S) Zero percent withholding tax on dividends for 10

years for new projects.Make the industry conducive for future large

scale investments that:will attract new investments and facilitate

expansion of sugar production that would lead to a sustainable sugar industry.

Contribute to transforming Tanzania into a relatively low cost agricultural products producer.

Withholding Tax on DividendsRate: 5-10% Increase formal employment (estate and factory employees of new

projects) Increase informal employment (traders in sugar related PROPOSAL FOR GOVT REVENUE DEFICIT RECOVERYDeficit will be covered by tax from increased sugar production

through corporate tax and P.A.Y.E, as per the BRN target of Additional 150,000 tons of sugar from new sugar projects by 2015/16, which will be allocated to Local Government Authorities.

EXPECTED OUTCOME/BENEFIT Expanded tax base to the Treasury, earning considerable revenue

from the expanded sugar industry, in terms of corporate tax and P.A.Y.E

Create opportunity to rural population to earn incomes through out-growing of sugarcane.

Issue 11: TeaTea Tax allowance on irrigation

equipmentIrrigation equipment used in tea production

is charged import tax which increases production costs .

ProposalGrant 100% tax relief on all irrigation

equipment to enable the smallholder tea growers to afford and access irrigation equipment to allow productivity increase.

Issue 12:TeaTurnover Tax on loss making companies at a

rate of 0.3%Turnover Tax on loss making companies at a rate

of 0.3%

is applied on all entities that make losses continuously for five years irrespective of whether there investment incentives.

Proposal Abolish this tax because tea has long gestation

period before making profits and profit margins are very low in agriculture

Tea (Contd)Workman’s Compensation Act 1%ProposalThis levy should not be introduced as it will be

counter productive in rural employment and poverty reduction

VATProposalZero rate tea Kenyan Tea Packers (especially the big ones) have

now been licensed to export packed teas into Tanzania. Given that most are able to access cheaper

Tea (Contd) teas from global market (Mombasa Auction)

and can export from Kenya at Zero duty, these teas land in Tanzania at much cheaper costs than Tanzania teas. In order to make Tanzania tea more competitive and in the light of some years of experience with VAT Zero rating (rather than VAT exemption) is what is required.

Issue 13:TeaZero rate tea Kenyan Tea Packers (especially the big ones)

have now been licensed to export packed teas into Tanzania. Given that most are able to access cheaper teas from global market (Mombasa Auction) and can export from Kenya at Zero duty, these teas land in Tanzania at much cheaper costs than Tanzania teas. In order to make Tanzania tea more competitive and in the light of some years of experience with VAT Zero rating (rather than VAT exemption) is what is required.

ConclusionPending the Government commitment to

modernize and transform Agriculture for the sake of improving the growth of the national economy, the sector should be rationally taxed.

The potential for Agriculture in Tanzania should not be over-emphasized but practically exploited to boost the economies of 70% Tanzanians who entirely rely on the sector.

This is through formulating conducive fiscal policies for agribusinesses.