Zim agro tax highest: World Bank report

Kuda Chikwanda in Berlin, Germany



ZIMBABWE’S tax on the ailing agricultural sector is the highest in a group of transforming and urbanised economies and is a resul

t of a highly overvalued currency, the World Bank (WB) has said in its 2008 World Development Report.


The report titled Agriculture for Development said Zimbabwe’s high net agricultural tax was in direct contrast to efforts by fellow countries in the transforming and urbanised nation categories, which were all reducing tax on agriculture.


“Some countries shifted to protect the (agricultural) sector more … while others continued to tax it, although at lower levels than in the 1980s. Zimbabwe is the only country of this group that had a higher net tax on the sector, mainly because of an overvalued currency,” the World Bank said.


Transforming countries are those where agriculture contributes less than 5% of Gross Domestic Product (GDP) and where poverty is mostly amongst the rural population. Urbanised countries enjoy less than 5% of agricultural contribution to GDP and poverty is mostly amongst the urban class.


Net tax for most countries in these categories fell from around 15% to an average of 4% as countries halved their net taxation to strengthen their agricultural sectors. Changes in net tax are measured by calculating the nominal rate of assistance offered farmers, which is the price of a product in its domestic market minus its price outside the country as a percentage of its external price.


However, in a country with foreign exchange distortions, changes in net taxation are measured through a process which accounts for the difference between the exchange rate used by importers (parallel), the one used by exporters (weighted average of official and parallel rates), and an estimated equilibrium exchange rate. Zimbabwe has serious foreign exchange distortions with the parallel market rate currently at US$1:$1 million while the official rate for the greenback is $30 000.


Government has steadfastly refused to devalue the overvalued dollar resulting in serious foreign currency shortages, which have crippled the economy over the years.


In addition, the central bank has unsuccessfully tried to support the agricultural sector through subsidies on inputs and fuel but this has served only to make the situation worse with the cheap inputs finding their way onto the parallel market instead.


At the presentation of the report in Berlin week, it was revealed that Official Development Assistance (ODA) had been cut drastically from 12% in 1990 to just 4% in 2006. It was also revealed that public spending on agriculture is currently at a meagre 4%.


German minister for Economic Cooperation and Development, Heidemarie Wieczorek-Zeul said most African countries had not met their Millennium Development Goal targets to date but called for more international support from developed nations to achieve this.

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