Tax Reforms Benefit Farmers and Traders: A Case of Tea Production and Marketing in Tanzania
Adam Kibiki is a tea farmer, husband and father of three kids in Iringa, located in Southern Tanzania. He is among the 65 percent of Tanzania’s labor force that are employed in agriculture and contribute 29 percent toward the national Gross Domestic Product (GDP).
Recently, Tanzania launched the second phase of the Agricultural Sector Development Programme (ASDP II), which aims to increase farmers’ productivity, commercialization and incomes. This is exciting news for Kibiki as tea is among the program’s priority commodity value chains for his region.
According to the Ministry of Agriculture’s 2018 budget speech, tea production in Tanzania is estimated at 35,000 tons in 2018/19. Kibiki has been among the smallholder farmers contributing toward the growth of Tanzania’s tea production through his seven-acre tea farm, which employs three people. Kibiki is also a member of a small farmers’ association and community of practice called Chama cha Wakulima Wadogo Wilaya ya Mufindi. As a member of the association, among other benefits, he is able to get trained on good agricultural practices and obtain loans.
On average, Kibiki plucks the tea leaves from his farm every 18 days. Annually, he harvests up to 20,000 kilograms that he sells directly to companies such as Unilever Tea Tanzania Limited (UTT), which then processes the tea leaves for national and regional consumption as well as exports, contributing approximately 30 percent to the total volume of tea produced in Tanzania. For tea farmers like Kibiki, this guarantees a market for their produce.
Companies had to pay up to five percent of produce price to the Local Government Authority (LGA). This rate varied across LGAs nationwide. The lack of harmonization of produce cess created an element of unpredictability that increased the business risk to tea processing companies. This trickled down to lowering incomes for farmers.
In response, in 2014, the Feed the Future Innovation Lab for Food Security Policy, Agricultural Sector Policy and Institutional Reform Strengthening (ASPIRES) project in Tanzania started assessing tax practices in rural areas and made recommendations to the Government of Tanzania. These resulted in the implementation of fiscal reforms across all LGAs in the 2017 Finance Bill, in which the produce cess ceiling was lowered from five percent to three percent. The 2017 Finance Bill also stipulated an exemption for produce cess for an amount up to one ton in transporting crops from one LGA to another.
Today, farmers like Kibiki have something to smile about because of these bold reforms implemented by the Government of Tanzania. The reduction of produce cess and other reforms contribute to Kibiki’s higher income. For example, as a cumulative effect of all the reforms, Kibiki’s earnings have increased from TShs 250 per kg to TShs 314 per kg. Based on his annual harvest of 20,000 kilograms of tea leaves, Kibiki can now earn an additional TShs 1,280,000 (approx. USD 581) per year.
With this increased income, Kibiki can now comfortably support his family and pay for his children’s education. This includes two children in high school and one in seventh grade. Kibiki sighs relief by saying in Swahili mzigo umepungua, which literally means the burden has been made lighter.
“Delaying the payment of my children’s school fees is no longer among my worries as I am now earning higher incomes through tea farming. Recently, my daughter started form six in a private school,” shares Kibiki.
Funded by USAID and the Bill and Melinda Gates Foundation, these significant milestones demonstrate the impact of the project’s policy research findings through the crop cess study and policy outreach, led by ASPIRES since 2014.
Commenting on this achievement, David Nyange, ASPIRES Chief of Party, said: “Supporting local government fiscal reforms has been at the core of ASPIRES’ activities since inception. The recent reforms on produce cess are a testimony of how policy research findings can be used to effectively inform decision-making and set the pace for more credible, inclusive, transparent and sustainable policy formulation processes in Tanzania’s agricultural sector.”
Going forward, ASPIRES will continue to work with the President's Office Regional and Local Government (PO-RALG) and the Ministry of Agriculture in preparing detailed guidelines for LGAs on the implementation of reforms. ASPIRES, in collaboration with the Ministry of Agrilculture and PO-RALG, is preparing the framework for monitoring, evaluation, learning and impact assessment of these tax reforms.
By Elizabeth Mwambulukutu, Isaac Minde and David Nyange