Tax Incentives for farmers
Financial Gazette 15/11/2018
Tax matters – Marvellous Tapera
THE agriculture sector largely influences the economic, social and political lives of the majority of people in Zimbabwe. It is also the source of sustenance for most rural Zimbabweans.
At commercial level, the sector produces export crops such as tobacco, cotton and horticulture products, which bring in foreign currency and improves the balance-of-payments. It is one of the biggest employers in Zimbabwe and also the key to the success of downstream industries, among them the manufacturing industry.
To resonate with this thinking, government recently introduced command agriculture to boost agricultural production and create employment. The fiscal regime also contains a number of incentives that are dotted across the revenue Acts, some of which we discuss in more detail in this article.
Special deductions
Farmers enjoy special deductions in respect of expenditure incurred by them on soil erosion prevention, water conservation works, clearing of land, sinking of boreholes and wells, aerial and geophysical surveys and fencing, highlighted in paragraph 2 of the 7th Schedule to the Income Tax Act (Chapter 23:06). This expenditure would ordinary be treated as capital expenditure deductibility against the income of the farmer spread over a number of years. For farmers it’s allowable as deduction in one go in the year the expenditure is incurred whether or not the work is still incomplete. In addition, the expenditure does not suffer tax recoupment on disposal.
Suspension of duty
Companies in tire agriculture sector are able to import capital equipment duty free in terms of SI 6 of 2016. Application is made to the Ministry of Agriculture via recommendation from the Ministry of Finance. Capital equipment is not to be sold or disposed of within five years from the date from which it entered under rebate, both VAT and excise duty shall immediately become due and payable. No sale or disposal of equipment imported under the duty suspension shall be made within 10 years from the date of entry without written permission from the commissioner. Applying for duty rebate saves on excise duty and saved amounts can be channelled towards other farming projects.
Livestock farmers
Livestock farmers enjoy relief when it comes to enforced sale of livestock, disposal of livestock due to epidemic disease or drought. They may elect to equally spread income from disposal over three years and election is irrevocable. They also benefit from re-stocking allowance which is 50 percent allowance on cost of purchasing livestock in a year of assessment, subject to the farming not exceeding the carrying capacity of the land upon restocking. The allowance is in addition to the cost of purchase of the livestock which is also allowable as a deduction. A farmer must possess livestock in a drought or epidemic stricken area. In addition the farmer may also elect to equally spread income from other farming operations over three years in the event that such income is less than enforced sale taxable income. The election is also irrevocable.
Tobacco farmers’ incentives
According to the June quarterly review report by the Reserve Bank of Zimbabwe “there was an increase in tobacco output triggered by an increase in the number of growers, from below 100 000 farmers to more than 140 000 in the current season. As at June 30, 2018, cumulative tobacco sales amounted to 218.8 million kilogrammes, about 31 percent higher than the cumulative total of 167 million kilogrammes sold during the same period in 2017”.
It is my view that the proposal made to exclude tobacco farmers from producing a tax clearance certificate for purposes of 10 percent withholding tax on contracts in the 2018 National Budget may have been granted taking into account the output increase.
The argument was that tobacco is a foreign currency earner and the farmers are facing a lot of financial challenges such as high cost of production, afforestation levy and other costs, hence the need to scrap the 10 percent withholding tax to avoid discouraging farming of the crop. Therefore, a contract for the purchase of auction or contract tobacco in terms of which the tobacco levy may be required to be withheld is not subject to 10 percent withholding tax in terms of s80 of the Income Tax Act (Chapter 23:06). This is a tax advantage to tobacco formers over other taxpayers who may be required to produce tax clearance in the absence of which 10 percent withholding tax is applicable on their contracts.
Anchor farmer incentive
“Anchor company” means a company that provides inputs, agronomic advice and marketing opportunities to a group of outgrower formers and small or medium enterprises. “Outgrower former” means a former who is party to a scheme or contract where under an anchor company supplies inputs, agronomic advice and marketing opportunities in return for the outgrower former selling or delivering the contract or scheme produce to the anchor company or other person designated by the scheme or contract.
Effective January 1, 2018 anchor companies are entitled to a deduction of expenditure of technical and support services incurred in assisting outgrower farmers plus 50 percent of such expenditure. A typical example of anchor and outgrower farming relationship is poultry contract farming.
VAT zero rating of fanning inputs
Farming inputs and equipment are also subject to VAT at 0 percent, entitling the former to input tax claim on his inputs. Among the zero rated products are animal feed, animal remedy, fertiliser, plants, seeds and pesticides. These have the effecting lowering the cost of farming.
Conclusion
As a former, your cost of production may be lessened and the farming process made enjoyable if you have adequate knowledge of tax incentives to take advantage of Meanwhile, Tax Matrix is going to host its 2019 Victoria Falls Tax Conference from May 22 to25, 2019.
Tapera, the managing director of Tax Matrix and CEO of Matrix lax School writes in his personal capacity.