Poultry sector Of Tanzania: Tax Reforms for Industry Growth

By Alpha Ngunyale(Executive Secretary at Tanzania Commercial Poultry Association)

In the quest to enhance food security, and affordability, and stimulate economic growth, countries often explore various tax policies. Two key mechanisms in this arena are zero-rating and tax exemptions, Zero-rating VAT means that certain goods or services are charged a VAT rate of 0%. However, unlike a mere exemption, zero-rating allows businesses to claim back any VAT they’ve paid on inputs used to produce these goods or services. This effectively reduces the cost of production and, consequently, the price to the consumer and Tax exemption, on the other hand, means no VAT is charged on the sale of certain goods or services, but businesses cannot claim back the VAT they’ve paid on inputs. This can lead to higher production costs for businesses since they bear the cost of VAT on inputs without any recovery.

The current standard VAT rate in mainland Tanzania is 18% (15% in Zanzibar), and it applies to most taxable supplies unless exempted or zero-rated under specific conditions. Tanzania’s VAT is governed by the VAT Act of 2014, which outlines the tax structure, rates, and obligations. VAT is ultimately borne by the final consumer.

• In Tanzania, unprocessed agricultural products like live poultry or raw eggs might be VAT-exempt. Here, while the end product sold to consumers does not carry VAT, the poultry farmers or egg producers cannot reclaim VAT on feed, equipment, or other inputs, potentially increasing their costs.

The poultry sector in Tanzania is a strategic and Transformative sector because of its Employment Multiplier Potential, Export Potential and its Ability to promote sectoral Linkages. However, A lot of work still has to be done especially in Making this sector competitive and Profitable to attract more investment and increase production efficiency. The goal should be to enhance its role in the national economy and people’s livelihoods by ensuring that we strategically address all identified challenges that limit its growth.

Regulatory and Tax reforms to make this sector attract More investment and impact More lives are essential, and one important reform could be looking into the possibility of zero rating if not the whole entire value chain, some of the most strategic poultry products.

The potential benefits of zero-rating Tanzania’s poultry sector in VAT could be reflected in various Social-economic arenas, few are mentioned Below.

Economic Benefits

1. Reduced Production Costs: Eliminating VAT on inputs like feed, day-old chicks, and Feed milling Machinery and Housing equipment directly lowers the cost of poultry production.
2. Lower Consumer Prices: Reduced production costs can translate into more affordable poultry products for consumers, especially low-income families.
3. Increased Consumption: Affordable poultry products can lead to higher per capita consumption of chicken and eggs, aligning with FAO recommendations for protein intake.
4. Sector Growth: Enhanced affordability and competitiveness may attract both local and foreign investments, fostering industry growth.
5. Higher Government Revenue: Although VAT collection may decrease initially, the anticipated growth in sector revenues could result in higher corporate tax and export income.
6. Import Substitution: By reducing costs, the sector could better compete with imports, retaining revenue within Tanzania and improving trade balances.

Social Benefits

1. Improved Nutrition: Affordable eggs and chicken can help combat malnutrition, particularly in children and vulnerable populations.
2. Job Creation: Sector expansion could create jobs in farming, processing, logistics, and allied industries, directly benefiting over 770,000 Tanzanians.
3. Support for Smallholder Farmers: Increased poultry production boosts demand for locally produced maize, soybeans, and sunflower oil byproducts, providing stable incomes for farmers.
4. Rural Development: Growth in poultry farming and related activities can stimulate economic activity and infrastructure development in rural areas.

Competitive Advantages

1. Regional Competitiveness: Lower production costs make Tanzanian poultry products more competitive in the East African market, potentially boosting exports.
2. Market Expansion: Affordable poultry products can open new domestic and international markets for Tanzanian producers.
3. Technological Advancements: Investment in advanced, bio-secure poultry systems becomes more feasible, improving efficiency and production quality.

Although it may seem as if zero rating the poultry sector could result to potential loss in VAT revenue but weighing that against the social benefits of affordable food, the economic boost from lower production costs, Employment and corporate Tax increase as a result of making poultry Farming Profitable and competitive the Losses are nots as significant, Also Previous analyses suggest that the revenue loss is manageable, especially if offset by an increase in consumption and production efficiency.

These tax reforms present a win-win scenario making poultry more affordable for consumers while stimulating industry growth and government revenue. By addressing VAT inefficiencies and reducing entry barriers, Tanzania can position itself as a regional leader in poultry production.