VAT Act 2014 harms horticulture

Arusha. A year ago, Tan-zanian parliamentarians endorsed the Value Added Tax Act 2014, amid fanfares and went home peacefully, little knowing that not everything that glitters is gold.

Now, six months since the law came into force, it turned out to be the worst enemy of the multi-million-horticulture industry, direct foreign invest- ments, and to the country econ- omy.

Contrary to the VAT Act of 1997, the new VAT Act 2014, which, its enforcement began on July 1, 2015, has failed to accommodate some key mod- ern agricultural inputs and

farm implements in its exemp- tion room.

For instance, industrialists say crucial items for agricul- tural transformation, like dam liners for irrigation technology and spare parts for technolo- gies like greenhouses have been locked out in the VAT exemp- tion list.

New agricultural inputs such as biological control agents — plant protection substances, critical not only for horticul- ture, but for the tradition cash crops such as coffee and cotton, were also not exempted.

As if that was not enough, storage, post-harvest and cool- ing facilities and equipment for agriculture have also not been included in the exemption list even as the nation is struggling to address post-harvest losses and related challenges.

Examples of such items are packaging materials, refriger- ated container, complete cold store units and cold store acces- sories

Tanzania Horticulture Asso- ciation (Taha) experts said the horticultural industry loses between 30 to 60 per cent of its yields in pre- and post-harvest- ing annually, mainly due to lack of reliable collection, grading and cold storage facilities near productive areas.

“Omitting these equipment from the exemption list means post-harvest losses, will remain high costing the country mil- lions of dollars in revenues annually,” says Taha policy and advocacy manager Anthony Chamanga.

On post-harvest control materials and equipment are among the most expensive to access as for one to establish a modern-pack house facility for example would cost over Sh3 billion.

Mr Chamanga says that add- ing VAT on such materials would obvious discourage new investments on such critical facilities.

To put things in perspec-

tive, he says, a Sh3 billion-post harvest pack – house can store over 40,000 tonnes of orange- fleshed potato in a year, serving over 3,000 out grower’s farmers and earning the country over Sh120 billion per annum as export revenue.

Considering a farm gate price of Sh1,000 per kg, this means that the government would generate revenue, in form of produce cess , amounting to over Sh2 billion . Produce cess is charged at 5 per cent of farm gate price.

Again such pack house facil- ity could create direct employ- ment of over 200 people and other indirect of over 7,000, Taha data indicates.

If the statistics are anything to go by, it is more imperative to put tax incentives for estab- lishment of the pack house for employment creation, rev- enue generation and national income.

“All these benefits would be realized sustainably, by just offering a VAT relief of less than Sh540 million for a pack house worth Sh3 billion,” Mr Chamanga explains.

To make the matters worse, even the locally produced agro- nets are exposed to VAT charg- es and as a result attracting higher and unaffordable prices to smallholder farmers.

Agro-nets specifically designed nets are used for cov- ering horticultural crops thus creating a physical barrier against insects and pests that cause damage to crops.

The use of agro-nets signifi- cantly reduces or eliminates the spraying of insecticides to vegetables, reduces cost of pro- duction to farmers as pesticides arecostly, andaboveall, enables farmers to produce safe, almost organicandhighqualityvegeta- bles devoid of pesticides hence increasing their competitive- ness.

Mr Chamanga argues that benefits of using agro-nets

therefore include: increasing effectiveness of crop protec- tion; nets are effective against resistant pests; nets increase yield and vegetable quality.

“Nets improve human health by minimizing insecticide con- sumption; nets reduce environ- mental pollution from insecti- cide residues; cheap technique; easy to use and not time con- suming, but now farmers can- not afford them,” he explains.

VAT Act, 2006, second sched- ule, section 10 for instance, it stipulates that VAT can be exempted to the supply of fer- tilizers, pesticides, insecticides, fungicides, rodenticides, herbi- cides, anti-sprouting products, and plant growth regulations, and similar products which are necessary for use in agricultural purposes.

“Since the agro-nets, which are produced locally, perform similar functions as pesticides, they honestly qualify for such treatment, but the new law is too blind to recognize that fact,” Mr Chamanga notes.

He further says that admin- istration of some of the exemp- tions under the current law has also been a challenge.

For instance, although the Act gives exemption to fertiliz- ers, some such as potassium nitrate do not enjoy such a relief with Tanzania Revenue Authority (TRA) arguing that such products can be used for other purposes.

Experts say that Potassium nitrate is one of the mostly commonly used fertilizers in horticulture production.

Horticultural growers say that the VAT Act 2014 discour- ages agricultural mechaniza- tion, makes the country less attractive to investors; local produces uncompetitive in the world market and will drive inflation upsurge.

Indeed, food contributes 55.9 percentweightonthecountry’s basketofgoodsusedtomeasure inflation – the consumer price

index (CPI).

A seasoned horticultural farmer at Nduruma in Arumeru district, Arusha, Jeremiah Tho- mas, says that the efforts by key development partners to intro- duce modern technology with an eye to transform the key eco- nomic sector would be useless.

“It’s pity because farmers have been introduced to mod- ern farming technologies that with the VAT Act 2014 in place cannot afford to purchase,” Mr Thomas explains.

It is understood, USAID has invested over $25 million in the past five years to support small- holder horticultural growers, among others, infrastructural development and introduction of new technologies in a bid to spur horticulture industry development.

Taha chief executive Jacque- line Mkindi argues that gener- ally, this law, which omitted the key modern agricultural inputs, substantially discouraged many investors both local and foreign to invest more in agriculture and especially horticulture.