Effects of Tax Policies on Agricultural Production in Sub-Saharan Africa

Effects of Tax Policies on Agricultural Production in Sub-Saharan Africa

Effects of Tax Policies on Agricultural Production in Sub-Saharan Africa
Most of the African people rely on agriculture as a form of labor and livelihood. In many countries, more than two-thirds of the population is mostly involved in
agricultural activities, and, therefore, they reside in rural areas where they carry out these activities. However, many of these people are also involved in the
supply of labor for other activities. About thirty percent of the GDP of most Sub-Saharan countries comes from agricultural activities while, in some countries, it
accounts for fifty percent of the GDP. Considering Sub-Sahara as a region, agriculture handles between fifteen and twenty percent of the GDP. However, for several
decades, this fraction has continuously changed and, therefore, also the economy of the countries in the region. According the reports in World Bank information, this
region has undergone a very little net increase in per capita income while measured using the purchasing power parity and the standards of living of the people.
The above information is to point out that agricultural out and income are less than the agriculture’s share of employment. Therefore, this means that agriculture as a
source of employment is not doing well in the region and that the workforce is gaining very little income. Hence, this fact has significant implications for the lives
of the people involved in agricultural activities. It is important t, therefore, put into consideration this situation since the value added is less when compared to
the employment’s share of this sector. In comparison with the non-agricultural sectors, output per employee is lower. Consequently, this is the reason most of the
rural areas in Sub-Saharan countries are poor since agriculture provides low returns. There are many reasons that are accountable for the results of poor agricultural
output and hence poor economic development in Sub-Saharan countries. Almost all these reasons are connected to high financing needed in this region because high prices
of things like input, technology for agriculture, and high transportation prices of outputs.
Comparison of Tax Policies on Agricultural production between Kenya and Tanzania
Taxation policies vary from one state to another, but in Sub-Saharan Africa countries, tax policies are greatly similar. This paper aims at exploring the tax policies
within countries in Sub-Saharan Africa and how they have impacted agricultural activities and production in the region. The taxation policies in the region have had
rampant effects on the agriculture sector both directly and indirectly. Tax policies that greatly affect the agricultural sector range from touching the exports and
imports up to the direct levies on the farm inputs and outputs. For a clear understanding of the influence of taxation on agricultural productivity, studies from
specific countries like Kenya and Tanzania are used. However, other countries such as Uganda and Ghana will also be considered in the study.
In Kenya, import license controls ended in the year 1993. It especially helped the local farmers by encouraging them to step up their production capacities as the
external competition had been barred. In the year 1997, the policies were reviewed, and a huge import duty was imposed on most agricultural produce imports like sugar,
milk and rice (Alila & Atieno, 2006). This taxation policy in Kenya, like in many other Sub-Saharan African countries, was aimed at safeguarding local farmers from
unhealthy competition from imports. In return, the move would see many local farmers increase their production volumes. However, the move did not result in significant
improvement in agricultural produce because the government did not involve other policies that could have helped the farmers in agriculture (Gollin, 2009). For
example, the Kenyan government ought to have included more subsidies in agricultural inputs in addition to helping the farmers acquire the needed technology and funds
that would improve the field of agriculture. Moreover, by finding the markets of local agricultural produce in the overseas could have increased agricultural outputs,
since the farmer would be encouraged by good returns from their products.
In the review of the tax policies, the African states were supposed to be careful, so that they could not overtax priority items like spare parts for farm machinery,
raw materials, and agricultural machinery. In Kenya around 1999, these items were leniently taxed by 5% import tariff. The move largely helped the agricultural sector
by ensuring the smooth running of affairs on the local farms and also maintained a low production cost for farmers. Kenya, like her counterparts in the Sub-Saharan
Africa, greatly employed these tax policies on agricultural produce to cushion their local farmers from the unhealthy competition for the market by imported cheap
agricultural products. In some countries, the farming process had been subsidized to great length, thus a very low cost of production and thus very low prices that
local farmers could not match. Allowing such cheap products inside the country would choke the local farmers (Meagher, 2001). However, this policy on import duties was
not very sufficient since many other factors also needed to be considered. For example, although the competition was reduced, the farmers continue to produce low-
quality products because of the lack of skilled labor, modern farming methods, farm implements, irrigation, and fertilizers.
As in the case with Kenya agricultural output and earnings from the produce Tanzania did not do well in the past and continued to frustrate a large population of
people since many involved in farming and living in rural areas. Moreover, exploding rate of population growth in the country frustrated the economic development.
Since Tanzania had little natural resources President, Julius Nyerere believed that the economic policies used by Western countries were not suitable for Tanzania.
Therefore, he embraced the conventional African tradition of sharing to create an African socialism. The idealism encouraged the young people who volunteered from many
areas in Tanzania to help in the development of the country. Though assistance came from the industrialized Western nations, Nyerere wanted the country to develop
without depending heavily on the West.
By the early 1970s, he had ordered the forced transfer of individuals to the collective farms, and this caused resistance and burning of villages. This campaign
resulted in the population almost starving and hence the country depended on foreign food aid for sustenance. In 1974, he admitted his failure and Tanzania was
characterized by poverty and inequality. Afterward, although other sectors such as education and health improved drastically, food production did not keep pace with
the rate of population growth. Exports of farm products such as coffee and tea were not adequate to acquire many new tools such as tractors. Therefore, food production
in this country continued to deteriorate leaving the larger population that comprises of farmer poor and dependent on foreign food aid (Ahlerup, 2015).
Moreover, because of lack of utilizing the modern techniques of farming like the use of fertilizer and technology Tanzania continues to lag behind in food production
and hence food insecurity and poverty. Since that, Tanzania is still a developing in Sub-Saharan Africa and depends majorly on the agricultural sector as a contributor
to its economic growth its economy is not doing very well. Moreover, lacking to match the standards of agricultural produce in developed countries and using expensive
manual labor its products lack competition (Gollin, 2009). Therefore, this leads to poor performance of agricultural products in terms of sales and income and hence
leaving the farmers poor and suffering. This results in stagnated economic growth of the entire nation.

Effects of Tariffs and their contribution to food insecurity in Sub-Saharan Africa
All the Sub-Saharan Africa countries are developing countries, and thus taxation in the agricultural sector accounts for a big portion of the total GDP. Import duties
are hiked in the name of protecting local farmers, but in the real sense in some countries like Kenya and Tanzania, the harsh taxes on imports makes the local farmers
miss the global market (Bond, 1983). The overtaxed imported goods used on farms makes local currencies be overvalued, and thus farmers tend to operate with a high cost
of production or use traditional methods of farming instead of keeping pace with technology in agriculture. Their outputs are of low quality in addition to being more
expensive than the global market price and in so doing they miss the market opportunities.
A Large part of the population in the Sub-Saharan Africa, like in the case of Tanzania and Kenya, is involved in agriculture even though they have moderately low
productivity and reside in isolated rural regions. Therefore, this is an expected equilibrium outcome, as long as productivity is the same, and there exist a few
alternatives food sources. Hence, the closed economy supposition is restraining but also revealing. A country has a growth and development benefit if it capable of
importing important amounts of food products in exchange for exports of services and non-food products (Ahlerup, 2015). Moreover, trading with other countries can be a
replacement for the stretched, slow business of increasing agricultural productivity. However, for many African countries with large populaces in rural and remote
areas, it is hard to see the significance of food importation and the ways in which it can reasonably replace domestic production. Therefore, the imposition of import
duty in addition to applying many tariffs and barriers that hinder international transactions on agricultural products, negatively affect the people of this region.
Moreover, in an economy where the people lack basic commodities such as food, hunger cannot allow positive development since the people are weak and hence economic
activities and work are not tackled well (Bates, 2001). Since in the developed countries there is enough food that can be imported cheaply than the local food
products, the Africans countries should, therefore, embrace importation of these products. This will ensure that there is food security in addition to improving trade
with these countries and hence stimulating economic growth.
Lack of Modern Farming Techniques, Skills, and Technology
Just like in many developing countries in the SSA region Tanzania agricultural sector faces the burden of taxation in spite of the fact it is not doing so well and,
therefore, crumbling it the more. For instance, the inputs such as machinery, seeds, and lands in addition to the produce in the market are taxed. Many studies have
concluded that direct tax is high in Tanzania and include produce cess and other local taxes. The tax transportation of farm produce restricts movement of the produce
and increases the marketing costs. Therefore, common problems are shared by farmers located in the Sub-Saharan African countries (Bates, 2001). The increased cost of
agricultural production in the SSA region, therefore, discourage the farmers from importing the needed technology, have proper training, and the best inputs to yield
much better quality produce in large quantity. For example, machinery importation is cost a lot for the farmers because of the large tax duties in addition to little
government support. Hence, the agricultural productions keep on deteriorating and hence the farmers continue to languish in poverty. Since the farming population is
the largest in these regions, the whole economy of the country is affected negatively.
Although the governments in the countries of Sub-Saharan African tend to subsidize agricultural inputs and lowly tax local agricultural sector with the intention of
protecting farmers, the move has not increased the outputs (Bond, 1983). Evidenced by the poor state of transportation network in the agricultural zones; clearly
explaining why farmers spent more on the transportation of their produce to the market and in transportation of the farm inputs like fertilizers to the farms (Bates,
2001). Moreover, the poor infrastructure discourages some farmers in producing more agricultural products since most of they cannot reach markets and hence go bad in
the farms. To counter the problem, farmers tend to hike the prices of their produce (Shalizi & Squire, 2000). In a market where there is imported produce originating
from countries where agricultural production is greatly subsidized and thus very low prices of their produce. The result of the whole issue becomes perennial poverty
and hunger to local farmers.
The use of fertilizer by the Sub-Saharan African countries is very likely to increase food production and eliminate poverty. Most of the countries have poor natural
endowments, and poor soil management aggravates the situation. Besides, many soil damaging practices can be noted in the region. Therefore, it is necessary to use
inorganic fertilizers to ensure the restoration and maintenance of the soil fertility. Nevertheless, using the inorganic fertilizers has to be entrenched either in an
incorporated soil fertility management method or in holistic cropping system technique, which include conservation agriculture. The objective should, therefore, be to
improve crop production sustainably using the “save and grow” technique.
The fertilizer universal price subsidies were familiar between the 1960s and 1980s in Asia and Sub-Saharan African (SSA) countries. In Asia, these subsidies played a
significant in the promotion of increased utilization of fertilizer and hence contributing to the considerable increase in agricultural output (Bates, 1981). However,
their contribution to the growth of agricultural as well as poverty reduction was low after the initial stages (Eicher, 1999). On the other hand, in Africa, many of
the nations sold the subsidized fertilizer via centrally governed input importing and supply system. Distinctions on the system were utilized in SSA in Malawi, Kenya,
Tanzania, Zimbabwe, and Zambia as well as other West African nations up to 1930s in some instances (Bates, 2001).
The result with universal subsidies in Sub-Saharan Africa was mainly negative as is led to inefficiencies including adverse choosing of program beneficiaries where the
well-off and influential farmers benefited. Moreover, there was also the disarticulation of commercial sales in addition to unbalanced financial costs against the
benefits (Bates, 1981). The failure couple with a change of development models towards structural modification eventually resulted to the dismantling of these
subsidies. Nevertheless, even during this period the voices asserting the role for limited fertilizer subsidies remained. Many onlookers note that the exclusion of
subsidies corresponds with a decrease in food production (Gollin, 2009). Therefore, the use of fertilizer in countries such as Nigeria followed the flow of the state
and federal government supply. It is fascinating to note that the Nigeria government abandoned universal subsidies in 1997 and resumed with the reformed subsidy
programs in 1999. In the 2000s, the combination of agricultural production decrease, food insecurity, decreased soil fertility, and the degradation of the environment
sparked fresh attention, from the political leaders and other development partners, in the promotion of input subsidies (Gollin, 2009). These are used as tools for
dealing with food insecurity and hunger. The increased use of fertilizer has been embraced by development partners and African government as a facilitating technology
to improve food production and security (Jaeger & Mundial, 1992).
A landmark in the rush of fertilizer subsidies, the 2006 (AFS) African Fertilizer Summit held in Abuja affirmed in its concluding declaration (African Union, 2006)
that African leaders should give targeted subsidies favoring the fertilizer sector, by providing, with the support of continent’s development partners, planned
subsidies in favor of the sector. Since the summit, African Union has been using NPCA to monitor the advancement towards the objectives set in the declaration.
Besides, it is coordinating the organization of an African Fertilizer Financing Mechanism (Rosen et al, 2014). Alliance for a Green Revolution in Africa (AGRA) also
supports for ensuring the availability of improved fertilizers and seeds, which are subsidized by the government and supplied via private sector to underprivileged
farmers. Finally, the Millennium Villages program also encourages the governments to heighten subsidized fertilizer utilization.
Moreover, some of the developing countries rely slightly on the machinery from developed countries. That is through importation. The harsh tariffs on imports by the
governments see the cost of procuring the needed agricultural machinery rise a lot. Such tax policies impact agricultural productivity negatively by increasing the
finances needed to carry out constructive agriculture using such machinery (Eicher, 1999). The farmers are unable to purchase the needed farm machinery and thus
implementation of the advanced and modern farming techniques and mechanized farming stalls. In Sub-Saharan African countries such as Ghana and Kenya, like many other
developing countries, despite farmers having knowledge on mechanized farming techniques, they are condemned to the indigenous non-profitable methods (Bread for the
World, 2004). All these are thanks to the harsh levies on the importation of machinery.
The agriculture sector in most of the sub-Saharan African countries faces multiple taxations. The farmers bear the high prices of farm inputs like fertilizer that have
been overtaxed; the outputs are also taxed. The double taxation leaves farmers with very little returns from their farms. They continuously face the difficulty of
purchasing seeds, preparation of their lands, fertilizer acquisition and even transportation costs because of the limited resources fetched from their produce (Jaeger
& Mundial, 1992). The morale of such farmers becomes very low, and thus their production capacity remains stagnant translating to redundant growth in agricultural
production of the entire country. With less supported agricultural sector, the food production capacity of the country remains very low and unable to feed her
citizens. The abject poverty becomes the order of the day for most of these developing countries in the Sub-Saharan Africa (Jaeger & Mundial, 1992).
In most recent years, the African countries have started entering into partnerships with other countries and relaxing the levies on imports from the partner countries
(Eicher, 1999). Local wealthy business people exploit the loophole in the system and import excessive of the agricultural produce. Since the countries of origin have
greatly supported their farmers in terms of fair taxes, subsidies, and research, their agricultural produce goes at very low prices (Eicher, 1999). Flooding of the
local market with the imported cheap products is of great disadvantage to the local farmers. They cannot compete favorably with the imported goods; since they are
vulnerable and greatly affected by harsh taxes by local government. Also the lack of support from their governments and absence of subsidies on the farm inputs
(Rajaraman, 2004).
Therefore, it is clear that taxation on agriculture has many impacts on the production of farm products. Because of taxation and other duties on farm inputs such as
seeds, fertilizers, pesticides, and others, the inputs appear to be another hindrance in Sub-Saharan Africa because of the high prices of acquisition the opposite of
what is witnessed in other parts of the world. Consequently, there is a significant explanation of the reason behind the low agricultural productivity in the countries
in the region. The consequence of this is low levels of income of many countries in Africa. Tariffs barriers, taxes and price bends in other sectors affect the
agricultural sector leading to increased prices of the inputs. Moreover, the higher prices of these inputs may also come from high costs of making the intermediate
inputs and movement to the rural areas (Bond, 1983). Moreover, the taxation policy in African countries can also lead to inefficiencies and deficient competition in
the retailing and wholesale sectors. The source of the problem is the dependent variable on setting the policies to address the high prices of inputs. Although most of
the nations in the Sub-Saharan region continue to use subsidies for agriculture inputs, there is no complete success or end of the problems of food productivity.
Input subsidies were utilized between the 1960s and 1980s to offset the policies that were against agriculture partially (Bond, 1983). However, the World Bank and IMF
sharply cut back the subsidies for most parts and eliminated some completely between the 1980s and 1990s terming them as unnecessarily inefficient and expensive.
References
Alila, P. O., & Atieno, R. (2006). Agricultural Policy in Kenya: Issues and Processes . Nairobi: Institute for Development Studies, University of Nairobi .
Bates, R. (2001). Prosperity and violence : the political economy of development. New York: W.W. Norton
Bread for the World. (2004). Policy Change. Retrieved from bread.org: http://www.bread.org/
MEAGHER, S. K. (2001). Tax Policy in Sub-Saharan Africa: Re-Examining the Role of Excise Taxation. Journal of African Economy, 31.
Rajaraman, I. (2004). TAXING AGRICULTURE IN A DEVELOPING COUNTRY:A POSSIBLE APPROACH. Delhi.
Shalizi, Z., & Squire, L. (2000). Tax Policy in Sub-Saharan Africa. Washington: The World Bank.
Bates, R. (1981). Markets and states in tropical Africa : the political basis of agricultural policies. Berkeley: University of California Press
Gollin, D. (2009). Agriculture as an engine of growth and poverty reduction: what we know and what we need to know. A Framework Paper for the African Economic
Research Consortium Project on ‘Understanding Links between Growth and Poverty Reduction in Africa’. African Economic Research Consortium: Nairobi, Kenya.
Eicher, C. K. (1999). Institutions and the African farmer (Vol. 3). Mexico DF: CIMMYT.
Jaeger, W. K., & Mundial, B. (1992). The effects of economic policies on African agriculture (Vol. 147). Washington, DC: World Bank.
Bond, M. E. (1983). Agricultural Responses to Prices in Sub-Saharan African Countries (Réactions du secteur agricole aux prix en Afrique au sud du Sahara)
(Reacciones de la agricultura ante los precios en los países del Africa al sur del Sahara). Staff Papers-International Monetary Fund, 703-726.
Rosen, S., Fuglie, K., Rada, N., & Meade, B. (2014). USDA Economic Research Service-Productivity Impacts on Food Security in Sub-Saharan Africa.
Ahlerup, P., Baskaran, T., & Bigsten, A. (2015). Tax Innovations and Public Revenues in Sub-Saharan Africa. The Journal of Development Studies, 51(6), 689-706.
TO GET YOUR ASSIGNMENTS DONE AT A CHEAPER PRICE, PLACE THIS ORDER OR A SIMILAR ORDER WITH US NOW.