Farmers Submissions into the National Budget for 2015/2016

For every 1 job created in primary agriculture about 7 more are created in the value chain. This sector is the backbone of the economy and is deserving of special attention from Government. Therefore, the following are recommendations to improve investment not agriculture and promote competitiveness and the ease of doing business in agriculture. It is hope that Government will adopt all these measures in the 2015/2016 National Budget.

Value Added Tax (VAT) as it affects primary agriculture.

Output VAT on various agricultural commodities

Almost all primary products produced on farms are zero rated for VAT. However, there are a few agricultural commodities, as itemized below, which are standard rated for VAT. In order to improve the competitiveness of the various value chains relating to these commodities we submit that they be zero rated for VAT in the coming budget:

VAT on Soya Bean Sales between February 2009 and August 2012

There is still an ongoing outstanding issue with relation to Value Added Tax on Soya Bean sales that took place between February 2009 and August 2012. During this period many producers and Traders were operating under the mistaken impression that, like most other basic food commodities, soya beans were zero rated for VAT. This impression was created by the genuine misunderstanding that Soya beans were leguminous vegetables which have always been 0 rated for VAT. Sometime in 2011, it then emerged that Soya beans were in fact a commodity that had their own tariff code and that they were subject to 15% VAT. It is notable that ZIMRA also did not enforce the law as regards Soya bean VAT until relatively recently. Unfortunately, by this stage producers and traders had unwittingly accumulated large tax liabilities.

We submit that in the circumstances this tax liability is an unreasonably prejudice to farmers and may have the effect of driving them out of business and into liquidation; or at the very least severely constraining their productive capacity when procuring finance for future cropping programmes. This would cause the loss of jobs and ironically also loss of sustainable tax revenue into the future.

It should also be noted that this issue regarding soya beans is exactly the same as the issues involving white sugar and Tobacco sold on Contract Floors. In the case of these two commodities Government retrospectively 0 rated or exempted the commodities with effect from February 2009. It is submitted that Soya beans be treated in the same way as these later two commodities. That is the zero rated status that they were accorded in August 2012 should be made effective from February 2009.

Input VAT on various Services supplied to farmers

There are a number of services and products that are key inputs in the agricultural production process most of which are zero rated for VAT. Examples include fertilizers, chemicals and seeds. The inputs, itemized in the table below, are standard rated for VAT. Whilst Farmers can in theory claim back this input VAT from ZIMRA, in practice it creates an unnecessary and costly administrative burden for both farmers and the State. Unnecessary in so far as there is a collection of VAT by the service provider only to have the funds reimbursed to the farmer some time later.  In order to improve administrative efficiency and reduce administrative cost; and further in order to ensure that farmers are not subjected to an unnecessary lost opportunity cost; it is proposed that the following services into agriculture be zero rated for VAT:

Fixed Standard Values of Livestock

The current Income Tax regime sets out fixed standard value for livestock. An increase in the size of a farmer’s livestock herd during a period is treated as an income to that farmer.

What this means is that the farmer is taxed on a theoretical income or increase in the value of his or her herd, and not an actual realised income. This position is extremely prejudicial to in particular the beef and dairy industry. Dairy cows are not reared for slaughter but are reared to produce milk. The farmer is already taxed on income realized from the sale of milk. We therefore submit that it is unfair for dairy farmers in particular to have to be taxed on any theoretical income which arises out of an increase in the farmers herd. This creates a disincentive for farmers to expand their herds as they are paying tax on income they have yet to actually realize. 

It is proposed that in the new budget that a pronouncement be made that Farmers will only be taxed on actual incomes that arise out of the sale of livestock, and not on theoretical incomes that arise out of increases in the value of the animals held.

Compensation for Acquired Assets and Improvements on agricultural land in accordance with the Laws of the Republic of Zimbabwe

We humbly submit that in order to build confidence in foreign direct investors and to improve Zimbabwe’s perceived investor risk, thereby reducing the cost of loan finance, Government must take measures that will reassure investors and build trust. Dealing comprehensively with the long outstanding issue of compensation for acquired assets and Improvements on farms is one such measure that will begin to build trust with foreign direct investors.  

We therefore submit that Government should set aside some funds in the budget to tackle this issue comprehensively in order to bring closure to the acquisition process.

Rural District Council Land Unit Levies and State Land Lease fees in Natural Regions III, IV and V

For some time now Rural District Councils have been empowered to collect land unit taxes ranging from US $ 1 to US $ 3 per hectare in natural regions III, IV and V. These regions of the country are much drier on average than the Northern areas and unless irrigation potential is developed are really only suitable for extensive livestock production. In the last year there have been pronouncements by Government that A2 Farmers will be charged a fee of US $ 5 per hectare, irrespective of the natural region he or she finds himself in. This fee includes a State land rent and the Rural District Council land tax. Whilst we acknowledge that it is important for Local Government to ensure that it is resourced sufficiently to provide the required public services, and whilst it is important to hold those citizens, lucky enough to have been allocated state land, accountable for its use by charging a rent, we do not believe that a blanket land unit tax will be practical for the entire country. The following example will illustrate this:

In natural region V the livestock carrying capacity is about one 500 Kg livestock unit (this is equivalent to one large steer or cow) per 15 hectares of land. This means a cattle farmer will pay US $ 75 for every 500kg livestock unit. This will make the production of cattle in those areas almost entirely unviable.

We therefore propose that a new standard formula, which accounts for the minimum income generating potential of the land in question, be crafted in order to more fairly calculate land unit taxes and land unit rentals.

In addition it is important the details of this arrangement be formalized. For instance which part of Government will collect the payments with effect from which date.

Rural District Council Levies on Cattle sales

For some time some Rural District Councils have sought to impose cattle sale levies on abattoirs and buyers of in excess of 10% of the cattle sale price. This levy will be passed on by the abattoir to the farmer. This is not sustainable for the cattle producers’ viability.

We propose that Rural District Councils should refrain entirely from imposing levies on the sale of agricultural produce by farmers and that an announcement to this effect be made in the budget.

Grain Marketing Board (GMB) Strategic Grain Reserve

The issue of late payments by the GMB for commodities delivered is well known. We would propose that Government make available sufficient resources within its means to enable the GMB to timeously honour its obligations to all farmers who deliver their produce.

If this is not possible, farmers should be advised prior to delivery of the exact date when they are to be paid. This will enable farmers to make an informed decision to market their produce elsewhere.

Relaxation of Levies and Taxes on Diesel Fuel for Agricultural Customers

In order improve competitiveness and in consideration of the insufficient supply of electricity it is submitted that Government must take steps to reduce to price of Diesel to farmers particularly for the running of generators and water pumps.

It is proposed that a special class of tax free dyed diesel fuel be made available to farmers for this purpose.  Application and vetting in respect of this facility should be done through the four registered farmers unions who will be responsible to verify that the authenticity of the applicant.

It should be a criminal offence to use dyed diesel outside of its designated purposes. This will have the added advantage of promoting the organization of agriculture through farmers unions.

Special Initial Allowances on Capital Expenditures in Agriculture

In order to incentivize much needed investment into retooling agriculture, it is proposed that Government reintroduce the 100% Special Initial Allowance on certain capital expenditures including any and all water storage, boreholes and irrigation equipment as a strategy to mitigate the effects of climate change, fencing, farm worker housing, conservation works to prevent river siltation and erosion and agricultural machinery and equipment.

It is also proposed to incentivize the adoption of solar powered water pumping schemes by putting in place a 115% Special Initial allowance on such capital expenditures.

It is submitted that all these measures will promote competiveness and improve the ease of doing business in the agricultural sector which is totally in line with both ZIM ASSET and His Excellency’s 10 point plan.

We prey that Government adopt these measures in the forthcoming budget.