Monday August 11 2014

What Ugandan farmers need is support, not taxes

By Isaac Ongu

In her budget for 2014/2015, Finance Minister Maria Kiwanuka proposed to remove tax exemptions on agro-inputs and levy 18 per cent Value Added Tax (VAT). This proposal is counterproductive to the government’s policy on modernising agriculture that seeks to ensure rural farmers migrate from subsistence to profitable agriculture through use of improved agricultural inputs. Government has been supplying free inputs to farmers through the National Agricultural Advisory Services (Naads), politicians and veterans, making it the biggest agro-inputs buyer in the country. Taxing agro-inputs, therefore, tantamount to government shooting own foot.

Besides, taxing inputs will reduce farmers’ access to improved inputs due to the resultant price increases. This will have a direct downward effect on the sector’s productivity, leading to high food prices. Uganda still has the lowest level of improved agro-input usage in the region, only helped by the majority of people involved in farming.

Government, through agencies like Naads exposed rural farmers to the benefits of using improved technologies. It should, therefore, ensure a smooth progress to develop the sector. Some farmers had started buying their own inputs to supplement the free ones they receive from the government, which is reflected in the rising number of agro-input dealers across the country. The drastic increase in prices due to tax will curtail this promising progress. Taxing agro-inputs would mean government will supply less in inputs this financial year than they did previously.

Ugandan farmers have been battling with issues of substandard supplies of seeds and other farm inputs from dealers and agents. This is worsened by less frequent inspection by the personnel from the ministry of Agriculture who are few and ill-equipped. Levying tax on inputs without streamlining the sector will trigger more adulteration in the input sector as an attempt to keep the price within affordable limit.
The agro-inputs sector in Uganda is at its infancy, so levying VAT on inputs will lower the already few number of farmers currently buying improved seeds.

It will also discourage regional players from joining the agro-inputs business in Uganda for fear of not getting enough buyers. Even those that have been in the business may abandon the input business because few farmers will be interested and they will not be able to sustain their businesses. The few that will remain in the business may be tempted to engage in adulteration of some of the inputs in order to compete in the market. Government should, therefore, stick to the revenue they have been receiving through issuance of imports permits.

Importantly, the government should drop the proposed tax on agro-inputs. But we should also go deeper into finding out what kind of inputs should be subsidised and availed to the rural farmers, especially women, to reduce the drudgery associated with subsistence farming. For example, inputs and equipment like hullers, gloves, gumboots, masks, grain-cleaners and herbicide (to help in weeding that takes most of their time), would be helpful.

Without addressing critical farming needs of women, the 18 per cent VAT exemption we are calling for, will only help the NGOs and MPs who have come up to oppose the levy, leaving the rural woman unaware of the positive impact of the waiver on their farming needs and income.
Mr Ongu is an agriculturist.