Uganda: Few Impressed With Tax-Free Hoes

The Independent (Kampala)

Julius Businge

17 June 2011

Finance Minister Maria Kiwanuka’s tax-free hoes may have sounded good in the budget speech, but many argue that the primitive implement cannot solve the real problems in agriculture

There has been little celebration of the new Finance Minister Maria Kiwanuka’s tax exemption on Uganda’s most commonly used agricultural implement – the hand hoe.

“To augment local production and encourage food security, import duty on hoes is remitted from 10 percent to 0 percent,” read the Minister in her maiden budget speech on June 8, barely a week after assuming office.

Farmers were unimpressed.

Hillary Nyakoojo, a maize farmer in Kasule subcounty, Kyegegwa district who uses a hoe, said the tax exemption gave him next to nothing.

“A hoe is a very cheap thing. It costs Shs 7,500 each and when I buy one it can last more than two years,” Nyakoojo said.

Nyakoojo equated the 10 percent import duty of Shs750 per hoe to the cost of 1kg of cassava flour, a ‘famine’ staple that has become increasingly common with food shortages and rising prices.

Not happy

“I am not happy at all. If they could provide us with walking tractors in our SACCOs, that would be good,” Nyakoojo said.

Nyakoojo’s disappointment is only partly due to the small amount of economic benefit involved in the tax cut. More importantly, it is due to his growing disaffection with the hoe, a primitive implement that takes a lot of energy to use while producing minimal returns.

“The hoe that I use needs a lot of energy. Sometimes I get tired. I fall sick and cannot work because I don’t have enough strength for it. My back hurts from bending all day. And the harvest is little,” he told The Independent.

Ms Namayanja, a tomatoes and vegetables grower in Wakiso district, said the hoe can only grow food for home consumption but cannot generate the income required to get out of poverty.

Namayanja would have been happier if government had addressed the other factors that more critically affect her business, like cutting fuel prices to reduce transport costs; offering soft loans with low interest rates; and subsidized seeds.

“I have no problem buying the hoe at the current price,” Namayanja said. “The problem is getting my tomatoes, onions and the rest, to Kasubi market where I sell them.”

Minimal margins

One would have thought that at least the sellers would rejoice for the break, but apparently not that much.

Garry Lee, sales manager of Tianjin Machinery Co. (U) Ltd, the main importer of the Cock brand of hand hoes from China, echoed the farmers’ concern that hoes were long-lasting implements, not bought very often by the same farmer, and that the tax benefit would contribute very little to the bottom line.

Garry revealed that inclusive of the 10 percent import duty, they sell a carton of hoes (24) between Shs147,000 – Shs150,000 to wholesalers, an average of Shs 6,200 per hoe. These would then retail at Shs 7,500 per hoe, and Shs 180,000 for the whole carton.

Garry said they would revise the price in accordance with the tax cut, likely reducing the wholesale price of the carton to Shs132,300.

He said there may be a slight increase in demand for hoes, but like Namayanja, he said Kiwanuka’s maiden budget might have been more welcome if it made the tax cut on fuel, which has a greater effect on the final price of agricultural products than the hoe.

Any price change from the tax cuts – however slight – is not likely to be seen in the market until after July, when new taxes take effect. A hand hoe retailer in Nakasero, Kampala, only identified as Tonny, told The Independent that he buys a carton of hoes from importers at Shs 148,800 and earns profit of only Shs31,200 per carton. Without the tax, it will cost Tonny Shs132,300 to buy the carton at wholesale and the final consumer will pay Shs6,750 per hoe, a saving of Shs 750.

“I will wait to see how much importers charge me on a carton to determine how much each hoe will cost,” Tonny said.

All hoes sold in Uganda are imported since the closure of Chillington Tool Company Ltd, a Jinja-based parastatal that used to make the Gonya (Crocodile) brand.

Tonny said he would have been happier with subsidies on heavy agricultural machinery like tractors to support commercialization and increased productivity among small scale farmers.

Out of step?

Joseph Karubanga, a lecturer in the Faculty of Agriculture, Makerere University, argues that popularization of the hoe seems to be out of step with the government’s broader policy of modernizing and commercializing agriculture, and is a reversal to subsistence farming.

“Agriculture modernization can’t be achieved by use of the hand hoe. Government should support farmers through subsidizing agriculture inputs like fertilizers, seeds, tractors and through giving loans at cheap interest rates,” Karubanga advised.

“It is the local farmer in the village who suffers because he/ she can’t afford prices of agricultural inputs. But government has capacity to assist this farmer out of this problem,” Karubanga added.

Prof Ogenga Latigo, a commercial farmer who served in the Parliament of Uganda for 10 years, including as Leader of the Opposition, argued that the tax cut on hoes earned farmers no benefit and cost government nothing, since the higher-cost imports that farmers need to improve production remained taxable.

“Removing taxes on hoes is not intelligent for a government that claims to be fighting poverty through ‘prosperity for all’. Supporting agricultural mechanization would be the right way to go,” Latigo said.

Latigo said that in 2004 government proposed to provide a walking tractor at every sub county to help mechanize agriculture.

Few were delivered, and even these did not benefit ordinary farmers, instead being captured by wealthy farmers or neglected by local government officials. He cited a tractor for Amuru Commercial Farmers in Northern Uganda that failed to fulfill the purpose for which it was issued.

Latigo said that unlike Uganda, the Kenya government has strong interventions on agriculture, providing input subsidies, soft loans, and strengthening the market for agricultural products, which has boosted the country’s commercial agriculture.

“If the Government of Uganda went the Kenyan way, human transformation would be realized,” he said.

The budget package

One could argue that the budget package provided by Maria Kiwanuka seeks to do just this. In the current context of food shortages in Uganda and the region, driven by rising demand and shrinking production, it makes sense that the 2011/ 12 budget focused on improving productivity and storage.

Out of the total national budget of Shs 9.8 trillion, the agricultural sector was allocated Shs437 billion, with the following key areas specified: the National Agricultural Advisory Services (NAADS) [Shs 133 billion], the Agricultural Credit Facility [Shs 30 billion], disease and pest control [Shs 9.5 billion], for restocking of Northern and North Eastern Uganda [Shs 200 million], irrigation [Shs 5 billion], and rehabilitation of ware houses [Shs 2 billion].

NAADS

Receiving the highest amount, NAADS has reportedly supported approximately 487,500 farmers with inputs and advice to enhance food security, and commercialise production in enterprises such as poultry, cattle and goats farming, banana suckers and tissue cultures, citrus, mango, coffee and tea seedlings.

However, the programme has been widely critised – including by the President himself.

Karubanga said while the idea of NAADS is good, its execution has been riddled with corruption and misuse of funds, such that it stunts, instead of benefitting improved agriculture.

Agriculture credit facility

Kiwanuka earmarked Shs 30 billion out of the sector’s share for the Agricultural Credit Facility for a third year running, to fund construction of warehouses and silos.

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