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A Qualitative Analysis of Effects of Crop Levies on Grain Trade in Zambia

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A Qualitative Analysis of Effects of Crop Levies on Grain Trade in Zambia Agricultural Trade: A Qualitative Analysis of Effects of Crop Levies on Grain Trade in Zambia by Stephen Kabwe and Chipego Zulu Working Paper 127 December 2017 Indaba Agricultural Policy Research Institute (IAPRI) Lusaka, Zambia Downloadable at: http://www.iapri.org.zm and http://fsg.afre.msu.edu/zambia/index.htm Agricultural Trade: A Qualitative Analysis of Effects of Crop Levies on Grain Trade in Zambia by Stephen Kabwe and Chipego Zulu Working Paper No. 127 December 2017 Indaba Agricultural Policy Research Institute (IAPRI) 26A Middleway, Kabulonga Lusaka, Zambia Kabwe is Research Associate and Chipego Zulu is former Business Development Associate at Indaba Agricultural Policy Research Institute (IAPRI) and currently CEO of Zambia Association of Manufacturers. ii ACKNOWLEDGEMENTS The Indaba Agricultural Policy Research Institute (IAPRI) is a non-profit company limited by guarantee and collaboratively works with public and private stakeholders. IAPRI exists to provide evidence-based policy solutions through high quality research and outreach services for transformation of Zambia’s agricultural sector to achieve sustainable broad-based pro- poor growth. We wish also like to thank Food Trade East and Southern Africa with funding from UKAID for financing the study. Funds from Food Trade ESA were leverage by the long-term Institutional support to IAPRI from the Swedish International Development Agency (SIDA), and the United States Agency for International Development (USAID) in Lusaka to IAPRI’s operations. Finally yet importantly, we would like to acknowledge the technical and capacity building support from Michigan State University (MSU) and its researchers, and Patricia Johannes for her editing and formatting assistance. Any views expressed or remaining errors are solely the responsibility of the authors. Comments and questions should be directed to: The Executive Director Indaba Agricultural Policy Research Institute 26A Middleway, Kabulonga Lusaka, Zambia Telephone: +260 211 261194 Telefax: +260 211 261199 Email: [email protected] iii INDABA AGRICULTURAL POLICY RESEARCH INSTITUTE TEAM MEMBERS The Zambia-based IAPRI research team comprises of Antony Chapoto, Brian Chisanga, Munguzwe Hichaambwa, Chance Kabaghe, Mulako Kabisa, Stephen Kabwe, Auckland Kuteya, Henry Machina, Rhoda Mofya-Mukuka, Olipa Zulu-Mbata, Thelma Namonje- Kapembwa, Hambulo Ngoma, Paul Samboko, Mitelo Subakanya, and Ballard Zulu. Michigan State University-based researchers associated with IAPRI are Eric Crawford, Steven Haggblade, Thomas S. Jayne, Nicole Mason, Melinda Smale, and David Tschirley. iv EXECUTIVE SUMMARY Governments in East and Southern Africa, including Zambia, have been facing resistance from agricultural stakeholders in the introduction or increase of various crop levies (taxes). In the past, particularly in Zambia, this led to the abolishment or suspension of crop levies. In 2010 for example, there was an outcry from various stakeholders who argued that these levies were not only cumbersome to implement, but ultimately disadvantaged farmers/traders who transported products to markets, as well as increased the cost of doing business. Courtesy of the campaign to reduce the cost of doing business in Zambia through the Private Sector Development Reform Programme (PSDRP), the lobby received a favorable response.1 However, with the change in government in 2015, the suspension was short-lived. The Minister of Local Government in 2015 directed all municipalities countrywide to continue collecting crop levies to increase their revenues (Zambia Daily Mail 2015), stating that the earlier suspension was not backed by any law. As a result, farmers, private traders, and transporters have since been calling for the repeal of these levies because they are increasing the cost of doing business and making the farmers poorer as they have to always bear the cost of such taxes. Against this background, this study therefore examines the implication of the crop levy on trade, and the impact it has on council revenue. Using field information from key stakeholders, the following are the key findings of the study: a) The crop levies are one of several sources of revenue for some councils in Zambia. Generally, the share of revenue from crop levies is low, hovering around 4% of total council revenues. However, the share of crop levies in revenue for rural councils is higher at 5%, than those in urban councils at 0.4%. b) In some districts, the crop levy has been collected twice for the same crop. Double taxation exists where farmers bringing the crop into town to sell to the traders are taxed—often arising from farmers being situated just beyond checkpoints away from district centres. When the traders purchase and transport the crop to another district, the crop is again taxed if no receipts are produced. The cost of the taxation, as indicated by traders in some cases, still falls on the farmers, as they are paid a price less the taxes. c) There was a strong feeling among farmers and traders that the council levies were too high and they increased the cost of production for farmers and trading costs for traders. They argued that the crop levy undermines the larger agenda of the government to reduce poverty among the farmers in rural areas. d) Resistance to council crop levies is mainly attributed to the lack of consultation between the council and the stakeholders. In addition, farmers and traders indicated that they expected councils to reinvest the revenue collected to the community through the provision of public infrastructure and services, but this was not the usual case. e) Some councils indicated that they do not fully collect levies from all parties because their districts are huge and is impossible to police all entry and exit points, hence, tax evasion is a major problem. Some councils indicated that they get no proceeds from the income raised from the tollgates even though they are mounted in their districts. In some areas, these tollgates have displaced the checkpoints that used to be mounted 1 Launched in 2005, the PSDRP served the purpose of promoting private sector investment by reducing the cost of doing business. The main goal of the PSDRP was to fast track and accelerate private sector reforms in priority sectors and create an improved competitive business environment. v along the roads, which in some instances have rendered council operated barriers and checkpoints ineffective and/or redundant. f) Even though Food Reserve Agency (FRA) is the major purchaser of grain, all the councils interviewed indicated that the agency does not pay any grain levy to the councils, citing that it buys maize grain on behalf of the government. This has affected their income generation from crop levies. In view of the above findings and in trying to improve the collection and use of revenue income from crop levy, the study makes the following recommendations: In the short run, the councils could target collecting taxes from the crop moving out of the district rather receiving levies from the crops that are entering the district, in order to avoid double taxation on the same crop. Secondly, local authorities must consider increasing stakeholders’ awareness of the motivation for crop levies and how the funds are utilized. The study has shown that minimal or no educating is done by the councils on how the crop levies were introduced. Furthermore, the local authorities could reinvesting part of the income from crop levies to maintaining the feeder roads in rural communities. Furthermore, a focus on improving feeder roads could result in an overall reduction of operational costs incurred by the farmers/traders. Therefore, a move of securing USD200 million from the World Bank for the feeder roads improvement and maintenance by government (Ministry of Finance 2017), is a welcome gesture and will complement councils feeder roads maintenance activities. Thirdly the councils need to develop alternative ways of collecting the agricultural taxes (e-payments or a lump sum payment) to reduce the human element and facilitate efficiency and effectiveness in the their collection because the current systems is associated with some levels of corruption and delays on the highways. Fourthly, the councils could consider reducing the crop levy by half in order to encourage willingness to pay without stifling agricultural development, as the current crop levies are considered excessive—especially if a trader is handling bulk loads. In the long run, government and local authorities could consider abandoning the crop levies, as they increase the cost of doing business in Zambia. In place of crop levies, local authorities and central government can introduce alternative sources of revenue for the councils that do not discourage private sector investment in the agricultural sector, nor discourage farmers from growing crops. An example of an alternative source as highlighted by Mwiinga et al. (2005), which is still valid, is where local authorities could introduce a minimal tax on unutilized land that has been idle over a number of years. This would encourage owners either to put such land under production or sell/rent it to those who have the means to put it under productive enterprises. Secondly, the local authorities must be encouraged to invest in capital projects that have the capability to generate income e.g., council-owned development and owning their own lodges and office buildings. Thirdly, the central government could develop and implement a mechanism that shares the revenue from
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