In a bid to bolster slowing agricultural exports and support industry growth, the government of Tanzania moved to eliminate the majority of levies applied to the agriculture sector in its 2017/18 budget. These levies have led to inflated input costs, and high levels of value-added tax (VAT) and tariffs on inputs have disproportionately affected smallholder farmers. Eliminating levies should help improve both staple and cash crop output, support near- and mid-term growth targets, and boost yields, productivity and smallholder earnings.
The National Bureau of Statistics (NBS) reports that Tanzania’s primary commodities have seen export receipts contract from recent highs. NBS data shows that total export revenues for the traditional commodities of tea, coffee, cotton, cashew nuts, sisal, tobacco and cloves surged from $583.2m in 2010 to a high of $956.8m in 2012 before falling back to $868.9m in 2013, $828.8m in 2014 and $827.2m in 2015.
Export contractions were recorded across four of the seven commodities in 2015. Clove export revenues fell by 94.3% to $3m, tobacco export revenues decreased by 36.2% to $201m and cotton revenues shrank by 30.5% to $38m. Although export tonnage stayed stable in 2015, tea export revenues contracted by 5.9% to $43m.
Much of this can be attributed to falling global commodity prices, with the NBS reporting that the prices of all seven major cash crops dropped in 2015. Tea prices shrank by 5.8% to $1477 per tonne, coffee prices decreased by 8.9% to $2511 per tonne and cotton prices fell by 9.5% to $1000 per tonne. The following recorded double-digit falls: cashew nut prices dropped by 31% to $1366 per tonne, sisal prices by 31.7% to $997 per tonne, tobacco by 33.9% to $3091 per tonne and clove prices slumped 52.3% to $5362 per tonne.
The UN Food and Agriculture Organisation reported that smallholder farms account for 80% of the country’s total agriculture production base. These farmers face notable challenges in boosting yields, productivity and exports. In addition to limited credit access, weak infrastructure and low-quality inputs, VAT and tariff fees have constrained growth.
According to a 2016 report published by the International Centre for Trade and Sustainable Development (ICTSD), VAT and tariffs on agro-inputs – such as seeds and plant materials – disproportionately affect smallholder farmers. While tax rebates are in place for large export producers, small-scale exporters falling below the VAT registration threshold are at a disadvantage because they do not receive reimbursements. Although high-quality inputs are critical for farmers to cultivate crops for regional and international exports, the centre reports that smallholder farmers faced charges of up to a 25% tariff and 18% VAT on agro-inputs. “Combined with unfair administration levies, tax levels prevent farmers from reinvesting their savings or some of their profits in purchasing new seed, hampering their ability to make substantial investments in the future growth of their businesses,” read the ICTSD report.
The government has recognised these obstacles, and the May 2017 draft budget statement announced the elimination of 80 of the 139 levies charged to crop producers and processors. The Ministry of Agriculture, which was allocated TSh267.8bn ($121.8m) in the draft budget, also announced plans to remove 23 levies from the livestock segment and five from fisheries. In the crop segment, 10 levies on tobacco products were eliminated, as well as 17 coffee levies, 16 sugar levies and two cotton levies.
The government is also planning to do away with 20 separate fees charged by the Tanzania Cooperative Development Commission. Significant eliminations include a $400 tax on licences to buy dark fire-cured tobacco, a $1000 fee on coffee export licences, $20 dry cherry coffee purchasing licences and a $250 fee for coffee processing licences. Furthermore, in a beneficial move for cotton industry development, the government also removed an annual flat charge of TSh450,000 ($205) that was paid by each cotton processing facility.