Farmers call for tax reprieve
FARMERS have called on the Minister of Finance and Economic Development, Cde Patrick Chinamasa, for a reprieve on the 15 percent Value Added Tax (VAT) it intends to impose on locally produced basic food commodities.
In a letter dated 21 December 2016, which was addressed to the Secretary of the Ministry of Finance and Economic Development Mr Zvinechimwe Churu, the Joint Farmers Unions Presidents Council requested for a three-month suspension of imposition of 15 percent VAT on locally produced basic food commodities to allow for further consultations and comprehensive understanding of the impact it would have on the economy.
The Joint Farmers Union Presidents Council which is a body made up of all the country’s farmers’ union leaders said the proposed standard rating for VAT on meat and potatoes was likely to adversely affect the country’s economy.
The decision to request for a three-month suspension of imposition of 15 percent VAT on locally produced basic food commodities came after a meeting that was attended by representatives of Livestock and Meat Advisory Council, Pig Producers Association of Zimbabwe, Zimbabwe Poultry Association, Zimbabwe Association of Abattoirs, Confederation of Zimbabwe Industries and the Zimbabwe National Chamber of Commerce on Tuesday.
“The proposed standard rating for VAT on meats and potatoes will raise the price of these commodities for consumers already operating on low disposable incomes. The most likely response by consumers to the price increases will be to reduce their purchase of such products. Consumption of livestock protein products where meat is essential for improved nutrition is a key objective in Zimbabwe’s Food and Nutrition Security Policy.
“It is also important to note that these products are a significant portion of the consumer budget and any price increases will drive inflation upwards. Wage increases across all sectors of the economy will be essential which may spur further company closures, counter to the theme of the 2017 National Budget statement of ‘pushing production frontiers for all sectors of the economy,’” read part of the letter.
The letter further read that the “premature” introduction of the policy would lead to reduced purchases by consumers culminating in decreased turnover in the retail sector.
“Alternatively, retailers may seek to maintain sales volumes by switching to imported meats and potatoes as they are cheaper . . . Any increase in prices of meats will force consumers to quickly shift to these cheaper alternatives. This obviously runs against the spirit of increasing the market share of locally produced goods in supermarkets and retail outlets which Government has been promoting following the promulgation of Statutory Instrument 64 of 2016, Control of Goods (Open General Import Licence) (No. 2),” read part of the letter.
The stakeholders in the food value chain are also of the view that since there was limited scope for increasing retail prices, the cost of VAT would be passed back to the farmers or demand for their products would decline as a result.
“Reduced livestock product sales and low farm-gate prices because of the standard rating will disproportionately affect smallholder farmers. This sector accounts for 90 percent of the cattle slaughtered in Zimbabwe and 67 percent of broiler chicken production.
“It is also important to note that potatoes have become a staple food in Zimbabwe. Production has increased from 58 000 tonnes in 2010 to 400 000 metric tonnes in 2016, mainly from small-scale farmers planting between one and two hectares of the crop,” read part of the letter.
Stakeholders also foresee a shift in demand for products that are targeted for VAT regulation away from the formal retail market to informal markets that operate outside the rules.
“Fish farmers who raise fish in ponds using commercial feeds are in competition with informal capture fishermen that harvest from dams without any value addition. Any rise in prices is also likely to increase informal cattle, chicken and pig slaughters under unhygienic conditions that will pose health hazards for consumers. The shift to the informal marketing of these products will negate the anticipated increase in revenue as both VAT and income tax returns from formal retail markets will diminish,” read part of the letter.
The players in the food value chain further argue that the country was already a high cost producer of meat products and potatoes due to the dependency on imported feed raw materials such as maize and soya bean as well as the high cost of fertiliser compared to the rest of southern Africa.
“Any increase in the price of meats and potatoes would further increase the price differential between locally produced products and those produced beyond Zimbabwe’s borders. The current producer price of broiler chicken in South Africa is $1,40 per kilogramme — one dollar cheaper than the producer price in Zimbabwe.
“VAT induced increases in prices will create huge incentives for smuggling of cheap protein products into Zimbabwe, a problem that has been experienced repeatedly in the recent past,” further read part of the letter.