The House yesterday 24th September 2014 passed the Value Added Tax (Amendment) Bill 2014 with amendments, taking into consideration recommendations from both the finance and agriculture committees of parliament. Both Committees had proposed that 18% Value Added Tax (VAT) on agricultural inputs and equipment be scrapped for FY 2014/15 until the Agricultural sector attains full mordernisation indicators to sustain itself.

While reading this year’s budget, Finance Minister Maria Kiwanuka proposed an 18% VAT on agricultural supplies explaining that the proposed termination of exemptions and termination of zero rating status would generate Shs. 323.7 bn. However, the Finance Committee, in its report argued that the proposed taxes would kill the agricultural sector which is currently struggling with a meagre growth of 1.5%. According to the report of the Committee on Finance, Planning and Economic Development on the Value Added Tax (Amendment) Bill, 2014, the Seed subsector is a critical and it needs to be protected to ensure seed is accessible and affordable to the majority of farmers for improved food security.

In regard to fertilizers, the Committee argued that the Uganda Census of Agriculture of 2008/09 revealed that most farmers (50%) were not using inorganic fertilizers because they were expensive. The concern of the Committee was that application of VAT on the supply of inorganic fertilizers would escalate the price of inorganic fertilizer even higher. Considering the fact that the usage of purchased inputs has been low especially in the rural areas, application of VAT at the standard rate on these inputs would make the situation worse, stated the committee report. It further stated that, the danger of increase in diseases was real for users who may be discouraged in using pesticides as a result of higher prices of pesticides.

“Application of VAT on agricultural supplies will make the situation worse, especially in rural areas and hinder the mechanisation of agriculture in the country,” Sebunya told the plenary session presided over by Deputy Speaker Jacob Oulanyah a week before this Bill was passed.

In regard to machinery, the committee argued that machinery and tools which are already expensive shall become more expensive and that the proposal of VAT on this machinery will hinder mechanization of agriculture which is associated with a high level of production and increase value addition. Although by last week there was a heated debate around VAT on agricultural machinery, the house under the stewardship of the Deputy Speaker of Parliament Jacob Oulanyah yesterday (23rd September 2014) passed the VAT (Amendment) Bill 2014 with amendments with minimal debate on it.

The decision is music to the ears of many farmers and other citizens in general who signed a petition urging government to reject these tax proposals which many viewed as regressive and a reflection of Government’s move to make it harder for the poor small scale farmers to make a living and access inputs for farming purposes!

BY: CIVIL SOCIETY BUDGET ADVOCACY GROUP