Tobacco farmers appeal for tax holiday
Edgar Vhera-Agriculture Specialist Writer
HARD pressed by the twin evil of increased production costs and constant or diminishing output prices, tobacco farmers have appealed to the Government to give them a two-season tax holiday that will allow them to retain 100 percent of the earnings in foreign currency.
A tax holiday can generally be referred to as a Government incentive that temporarily reduces or eliminates taxes for consumers or businesses.
The Monetary Policy Committee (MPC) of the Reserve Bank of Zimbabwe (RBZ) under exchange control 5 of 2023 said all tobacco and cotton growers will be paid 75 percent of their sale proceeds in foreign currency, while the remaining 25 percent will be settled in local currency at the prevailing interbank market rate in the 2023/24 season.
This ratio is down from the 85/15 percent split that was operational in the 2022/23 season.
Zimbabwe Tobacco Growers Association (ZTGA) chairman Mr George Seremwe said tobacco farmers were appealing to Government to allow them to return 100 percent of the earnings in foreign currency as their production cost components were foreign currency based.
“We kindly appeal to Government to give tobacco farmers a two-season tax holiday to retain 100 percent of their foreign currency earnings.
This will make tobacco production attractive and lure more people into production of the crop thereby aiding the 2025 target of 300 million kg. Currently tobacco is a loss-making venture with only a few farmers breaking even.
“Many are still into production only as a tradition while some are debt trapped and cannot get out,” the ZTGA chair said.
The country is targeting to sustainably produce 300 million kilogrammes of flue-cured tobacco by 2025 under the Tobacco Value Chain Transformation Plan (TVCTP) with the 2023 production reaching 99 percent with a record production of 296 000 tonnes that earned farmers US$897 million.
Reports from the Tobacco Industry and Marketing Board (TIMB) weekly report 45 dated November 10 show that there has been a 25 percent decline in registered tobacco growers for the 2023/24 season with 92 percent of them under contract.
For the 2023 season, tobacco farmers got 85 percent of their earnings in foreign currency with the 15 percent balance paid in local currency at the ruling interbank rate.
“The little 15 percent of the foreign currency earnings that was converted to the local currency at the interbank rate under the 85/15 split portion helped farmers a lot unlike this 25 percent surrender. All inputs and farmer contracted loans are settled in foreign currency,” Mr Seremwe added.
“We want to retool and be able to purchase other commodities for the industry through increased purchasing power buoyed by increased retention and reduced cost of production,” he said.
Zimbabwe Tobacco Association (ZTA) chief executive Mr Rodney Ambrose concurred saying as the economy had dollarised 80 percent, there was need to increase farmers retention from 75 percent.
“Tobacco production costs are already 90 to 100 percent dollarised. Last season’s 85 percent retention assisted in improving growers’ viability, more so given the flattening out of farmers tobacco prices and increased costs of production.
“Contractors have lent out almost 100 percent of their loans in foreign currency to farmers, anything less than the current 85 percent retention will negatively impact on growers’ viability,” the ZTA head said.
Tobacco Farmers Union Trust (TFUT) president Mr Victor Mariranyika aided his voice saying that he hopes the Government will reverse this directive in next year’s monetary policy and allow farmers to retain 100 percent of their earnings.
“It’s unfortunate that 75/25 split portion reverses the gains made, we hope that the policy will change in February 2024. This previous season’s 85 percent retention was not enough for farmers, so we were looking forward to 100 percent foreign currency retention in the 2024 marketing season,” he said.