Impacts of agricultural produce cess (tax) reform options in Tanzania[Impacts des options de réforme des taxes sur les produits agricoles en Tanzanie]

The government of Tanzania is willing to improve the socio-economic environment for the farming sector to encourage farmers to produce (and sell) more products from their activities. To that end, the central government is reforming the local tax system and particularly the agricultural produce cess, which is a turnover tax on marketed agricultural products charged by local government authorities (LGAs) at a maximum of 5% of the farm-gate price. Although it constitutes a significant source of revenue for many LGAs, this tax restricts an increase in production by farmers, and thus improvement of their livelihoods. In 2017, the government reduced the maximum cess rate from 5% to 3%. However, this reduction seems insufficient according to stakeholders, and several options to further reduce the rate are currently under discussion by the government. This report provides an ex ante impact assessment of the main reform options, using a microeconomic simulation model called FSSIM-Dev (Farming System Simulator for Developing Countries). Based on positive mathematical programming, this model was applied to a representative sample of 3,134 farm households spread throughout the country, taken from the World Bank LSMS–ISA surveys. Simulation results show that reduction of the cess rate leads to greater intensification and an increase in farm income, ranging between +2% and +21% depending on options and regions. The largest positive impacts are observed in the Northern and Western highlands. As expected, large farms and farms specialized in cash crops tend to gain more from the reduction in cess. At the individual farm household level, the impact is modest: 95% of the farms will experience an income increase of less than 10%. The impact on food security and rural poverty reduction is quite limited (improvement is less than 2%). Finally, the results show that a uniform cess rate of 1% for all crops seems to be the most efficient policy option.