Is VAT on Agricultural Inputs Cost Effective?
2017
Swaibu, Mbowa | Steven, Were Omamo | Joseph, Rusike
This policy brief summarizes the results of preliminary analysis to quantify the potential farm-level and aggregate impacts ofthe proposed imposition of 18% value added tax (VAT) on key agricultural inputs in Uganda. Results reveal that the potentialcosts of the proposed imposition of VAT on agricultural inputs appear to far outweigh the potential benefits. The impact of VATimposition on maize seed and fertilizer is estimated to contribute total tax revenues of $10.29 million compared to estimatedtotal losses to maize farmers of $20.93 million. This implies a benefit-cost ratio (BCR) of 0.49. This ratio of benefits to costs iswell below acceptable levels; and if other commodities, inputs, and other impact channels (e.g., the “output price effect”)wereconsidered, the BCR could be even much lower. In conclusion, the proposed measure undermines basic agricultural and broadereconomic growth and development objectives; and the ratio of benefits to costs renders the proposed measure unjustifiablebased on economic arguments. Therefore, the proposed measure should be reconsidered; and alternative sources of revenuesought.
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