Introduction
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 Zimbabwean. 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 payment. It is one of the biggest employer in Zimbabwe and also the key to the success of downstream industries, among them the manufacturing industry. To resonate with this thinking the government recently introduced command agriculture in order to boost agricultural production and create employment. The fiscal regime also contains a number of incentives which 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 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 would be 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 uncompleted. In addition, the expenditure does not suffer tax recoupment on disposal.
Suspension of Duty
Companies in the 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 sell or disposal of equipment imported under the duty suspension shall be made within 10 years from the date of entry without a written permission from the commissioner. Applying for duty rebate saves on excise duty and saved amounts can be channeled 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 3 years and election is irrevocable. They also benefit from re-stocking allowance which is 50% 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 3 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 which was triggered by to an increase in the number of growers, from below 100 000 farmers to more than 140 000 farmers in the current season. As at 30th June 2018, cumulative tobacco sales amounted to 218.8 million kilograms, about 31% higher than the cumulative total of 167 million kilograms sold during the same period in 2017”. It is of my view that the proposal made to exclude tobacco farmers from producing a tax clearance certificate for purposes of 10% 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 tobacco farmers are facing a lot of financial challenges such as the high cost of production, afforestation levy and other costs hence the need of scrapping of 10% withholding tax so as not to discourage the farming of the crop. Therefore a contract for the purchase of auction or contract tobacco in terms of which tobacco levy may be required to be withheld is not subject to 10% withholding in terms of s80 of the Income Tax Act (Chapter 23:06). This is a tax advantage to the tobacco farmers over other taxpayers who may be required to produce tax clearance in the absence of which 10% 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 farmers and small or medium enterprises. “Outgrower farmer” means a farmer who is a party to a scheme or contract where under an anchor company supplies inputs, agronomic advice and marketing opportunities in return for the outgrower farmer selling or delivering the contract or scheme produce to the anchor company or other person designated by the scheme or contract. Effective 1 January 2018 anchor companies are entitled to a deduction of expenditure of technical and support services incurred in assisting outgrower farmers plus 50% of such expenditure. A typical example of anchor and outgrower farming relationship is poultry contract farming.
VAT Zero rating of farming inputs
Farming inputs and equipment are also subject to VAT at 0% entitling the farmer to input tax claim on his inputs. Among the zero rated products animal feed, animal remedy, fertilizer, plants, seeds and pesticides. These have the effecting lowering cost of farming.
Conclusion
As a farmer, your cost of production may be lessened and the farming process made enjoyable if you have the adequate knowledge of tax incentives to take advantage of.