Economist, John Robertson

THE 2016/17 agricultural season was meant to be a good year for tobacco farmers, until the taxman came along.
Late last month, farmers without valid tax clearance certificates — and these happen to be in the majority — were asked to pay a 10 percent withholding tax, which is a normal legal requirement for any income earner.
The 10 percent tax on gross sales of farmers who failed to produce valid tax clearance certificates as at March 31 came into effect because farming is serious business, and the Zimbabwe Revenue Authority (ZIMRA) is therefore empowered to collect its dues.
In its letter dated March 30, 2017, ZIMRA wrote: “Please be advised that in terms of section 80 (2) of the income tax Chapter 23:06 as quoted below: Subject to this section, unless a payee furnishes the paying officer with a tax clearance certificate, the paying officer shall withhold 10 percent of each amount payable to the payee under the contract concerned, and shall remit each amount so withheld to the commissioner on or before the 10th day of the month following that in which payment was made. In this regard, you are requested to comply with the above instruction by withholding 10 percent from each supplier who does not have a valid tax clearance certificate and issue the supplier with a withholding tax certificate.”
But lo and behold!
Government had to make a U-turn after the angry tobacco growers threatened to withhold the crop, because the tax obligation was going to punch gaping holes into their coffers.
Ultimately, the farmers have once again postponed their obligations till their next harvest, a scenario that many analysts have described as untenable.
While taxation of any nature always faces resistance — not only in Zimbabwe but across the continent at large —analysts who spoke to the Financial Gazette concurred that all farmers should pay their taxes.
Economist, John Robertson, said farmers, like any other Zimbabwean earning an income, should pay their taxes.
“This new tax debate has started because ZIMRA realised that until now an existing tax had not been applied to farmers, who were not already registered as tax payers. Commercial farmers were all registered as companies and were all taxed on their profits, as are all companies. Any company that meets its obligations by having audited accounts and paying all taxes due is able to get a tax clearance certificate.
“By quoting their certificate number, these companies get the full amount owed to them when they make a delivery to a buyer or sell at the auctions. But a grower who is not registered as a company and will not, therefore, pay tax on profits at the end of a year, must expect the buyer to pay only 90 percent of the amount to the grower and the buyer is under an obligation to send the other 10 percent to ZIMRA,” Robertson said.
Most small-scale farmers in Zimbabwe rarely operate formal companies hence they do not have tax clearance certificates.
In the past, commercial farmers were taxed on profits made.

MDC-T Eddie Cross

To encourage investment in new facilities, such as tobacco barns, dams and irrigation schemes, government would offer tax allowances that often added up to more than the amount of tax owed on their profits.
“If farmers re-invested their profits, they might pay no tax at all for a few years, but if the investment plans were successful, government would get the taxes on much bigger profits a few years later. These allowances helped to keep up the pace of development on the farms and they helped make the farmers more efficient and the agricultural sector more successful,” Robertson said.
He added that the communal/small holder farmers were treated as informal sector operators who were not taxed before, but now they would be “made to pay” the withholding tax because 10 percent of the amount paid for what they sell will be sent directly to ZIMRA.
Economist, Aurther Shoko, concurred with Robertson arguing that ZIMRA had ignored an already existing law for a long time and farmers are obliged to pay their taxes.
“However, the concern is perhaps around the implementation. It would appear the farmers were caught by surprise. It is a catch-22 (situation). It’s possible that if government had alerted farmers ahead of the season, some farmers would have been discouraged from producing the crop. This again would have an impact on the economy. On ZIMRA’s side, it hasn’t come out well, PR wise, because it’s the general perception that ZIMRA is in a heightened tax blitz,” Shoko said.
Agricultural economist and Bulawayo South legislator, Eddie Cross, said the withholding tax will not only apply to tobacco growers, but to all farmers producing other crops.
“All former commercial farmers paid taxes and held valid tax certificates — the new settlers, especially the small farmers do not and this is the group that the authorities are trying to tax with this 10 percent withholding tax on gross sales,” Cross said.
Cross, however, believes that the move was not practical for the majority of small scale farmers, who may not survive a 10 percent reduction on their gross sales.
Attempts have been made to get the resettled farmers to pay a fee or tax on the land (land rental) allocated to them, but government seems to have had little success in collecting these sums.
A1 farms are expected to pay a rental levy of US$10 per year and a development levy of US$5 annually per farm. A2 farmers should pay a rental levy of US$3 per hectare per year and a development levy of US$2 per hectare per year per farm.
According to an agricultural expert Ian Scoones, experience shows that land taxes can only be implemented effectively if they exist within a stable and effective land administration system, where land tenure rights are clear, and administrative systems exist for tax collection and for pursing those who fail to pay.
“Transparency and accountability are key because it needs to be clear what the taxes will be used for. The idea of a land fund in Zimbabwe has been long mooted, and plans exist for issuing leases to A2 farms, linked to a full survey/audit, but for reasons both administrative and political, this has not yet happened. Implementing only one bit of a policy, and expecting taxes to work as a result, without addressing the wider land administrative system, is destined for failure,” Scoones said.
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