Friday August 1 2014

Tax agricultural produce, not inputs

The ongoing one-million farmers’ signatures campaign to press Parliament to drop proposed taxes on agricultural inputs should be supported.

This move is good for all Ugandans because 68 per cent of households are in subsistence farming, according to the last census, done in 2002.

Agriculture remains the main sector that employs most Ugandans, according to the 2012/13 Uganda National Household Survey.

The data also shows at least 1.6 million Ugandans are engaged in agriculture and their production is entirely for own consumption. This means nearly 70 per cent of Ugandans survive on agriculture for both food security and generating income.
The survey is backed up by President Museveni in his recent State-of-the-Nation address. The President dwelt on agriculture, which he said is most easily accessible to majority of Ugandans.

By Mr Museveni’s own argument, if all these homesteads were converted to commercial farming, the size of agriculture would be much bigger. Granted, but this cannot happen now, given the government’s proposal to tax critical agricultural inputs, and not outputs, in the 2014/15 Budget.

As the Civil Society Budget Advocacy Group rightly pointed out, the new taxes will punish poor rural cultivators and make it even harder for them to make a living.

The new taxes will also hinder small-scale farmers from accessing farm inputs, meaning even fewer Ugandans will now make it to the output market level since most are subsistence farmers with unviable surpluses.
Worse, Mr Museveni’s four-acre model, each for clonal coffee, fruits, food crop, and elephant grass for zero-grazing Friesian cattle, and the projected huge financial returns per acre per annum for these households cannot work effectively now.

Likewise, the options for tea, mushroom and vegetable growing, onions, tomatoes, cabbages, despite the large global demand, would also fail because they demand farm machinery and tools, seeds, fertilisers, pesticides and hand hoes. But all these previously VAT zero-rated supply is now proposed to be taxed.

These proposed taxes on farm inputs, value-addition processes and production processing will hold off the agricultural sector that grew by 1.5 per cent in 2013/14 Financial Year. The new taxes will block this growth; favour the big farmers, kill agri-businesses expansion by small-scale farmers and entrepreneurs.

The proposal to tax agricultural outputs instead of inputs is more progressive. As some Youth MPs have said, government should not transfer the tax burden to sectors our rural families survive on.
Government should look elsewhere to plug the gaps in the budget.