The Zimbabwe Farmers' Union (ZFU) is lobbying Government to exempt farmers from paying 10 percent withholding tax on produce exceeding $1 000, arguing the levy was eroding their already low incomes.
In previous years, farmers would approach the Treasury seeking a special dispensation for a particular season, which had always been granted especially for tobacco growers.
However, ZFU, the country's largest farmer representative body is now pressing the Government to permanently exempt farmers through a legal instrument.
In terms of Income Tax Act Section 80, a 10 percent withholding tax is deductable to individuals -- without tax certificates -- from all amounts payable totalling or aggregating to $1 000 or more over the year of assessment. Zimbabwe's agriculture sector, arguably the largest source of livelihoods for rural households is dominated by an excess of half a million communal and small-scale farmers, particularly in cotton and tobacco.
As such, the farmers are obliged to pay 10 percent withholding tax on produce valued at more than $1 000.
"Over the years, we have been requesting for special dispensation from the Ministry of Finance (and Economic Development) every marketing season and (the ministry) has been responding positively," ZFU executive director Mr Paul Zakariya told The Herald Finance & Business in an interview on Monday.
"However, we feel our communal and small-scale farmers should be permanently excluded from paying the tax through a legal instrument. This is critical given the importance of agriculture as one of the most productive sectors."
Tobacco and cotton are Zimbabwe's largest agricultural export commodities and are mostly grown by communal farmers.
Nearly 400 000 farmers are growing cotton under a State sponsored programme known as the Presidential Free Inputs Scheme, which is administered through The Cotton Company of Zimbabwe.
Last week, the ZFU wrote to the Treasury, requesting cotton farmers to be exempted during the 2020 marketing season.
Tobacco farmers have already been given a special dispensation. Modalities are being worked on how the sale of the two commodities would be conducted after the Government imposed a ban on public gatherings of people exceeding 50 as part of broad measures to combat the spread of the deadly coronavirus.
Chief director (communications and advocacy) in the Ministry of Finance and Economic Development Mr Clive Mphambela, said while tax relief intervention measures may be considered from time to time, scrapping it altogether was not ideal given that farmers also depends of Government services, which are funded by the taxes.
"It's not a strong argument because farmers also depend on Government services such as extension services, disease and pest control and many others," said Mr Mphambela.
"Besides, when you look at agriculture, it is one of the sectors with the best tax concession tariff. Taxes should be equitable but in our situation they are skewed in favour of farmers."
Some critics argue that the agriculture extension services from Government have been erratic in recent years as the private sector, which finance farmers has assumed the role.
Economist Persistence Gwanyanya said while both parties provided sound arguments, any compromise should largely benefit farmers.
"Both parties are providing sound arguments. In my view, taking into cognisance the lingering effects of monetary reforms, farmers would better appreciate a tax relief, which is more of a direct intervention that gives direct relief. Support sometimes does not give direct benefits to farmers.
"Although the farmers are complaining about the 10 percent withholding tax, the country's tax regime has not been favourable to the poor, the 2 percent tax as a case in point. So although Government has fair points, as I indicated earlier, if there is going to be any compromise, it should largely benefit the farmers."