Experts have said the Value Added Tax (VAT) on farm inputs could hurt Uganda's agricultural sector.
While discussing the impact of the tax at a recent workshop organised by the Makerere University-based Economic Policy Research Centre (EPRC) and Alliance for a Green Revolution in Africa (AGRA), Swaibu Mbowa, a research fellow at EPRC, said:
"It [the tax] is a shock to farmers as it makes production so uncompetitive in the region."
He added: "The costs of this tax far outweigh the benefits."
Private Sector Foundation Uganda (PSFU) boss Gideon Badagawa reiterated that argument, saying: "Kenya tried it and finally dropped the idea. Rwanda has subsidies of fertilizers, why is Uganda taxing peasant farmers?"
In June, Finance Minister Maria Kiwanuka proposed the termination of 18 per cent VAT exemption on farm inputs in order to generate Shs 30.4bn. The tax targets poultry feeds, fertilizers, pesticides, machinery like tractors and hoes, among others.
Analysts said it was a step backward in an effort to promote commercial farming. Steven Were Omamo, the director of policy and advocacy at AGRA, urged government to reconsider the proposal. The agricultural sector remains one of the least funded; it got just three per cent of the national budget this financial year.
Minister Kiwanuka, however, argued that sectors like roads, energy, and research, which get more funding, have indirect linkages to agriculture, and that when you add up those resources, its funding could go as high as 13 per cent of the 2014/15 budget.
Meanwhile, Dr Kisamba Mugerwa, the chairman of the National Planning Authority, said there was a need to empower the community to demand for services in the face of increased taxes.
"We need to take hard decisions. Let us pay taxes and demand for services," Mugerwa said.
Mathias Kasamba, who chairs the parliamentary committee on Agriculture, blamed government for holding few consultations before it came up with the tax measure.
"We as Parliament did not discuss anything on VAT on agricultural inputs. VAT is going to have an effect on food production," he said.