Ministry of Agriculture /MoA/ drafts a document to request the ministry of finance to remove tax imposed on all kinds of animal feeds as it is one driving factor for the price hike of livestock market in the country.
Livestock production contributes up to 80 percent of farmers’ income in Ethiopia and about 20 percent of agricultural GDP. Ethiopia has the largest livestock population of any country in Africa and nutritional factors are the binding constraint to sustaining livestock production in the country. Commercial feed sub sector and livestock has been suffering from unfair taxation for long, for example, in ruminant feeds 15 percent of value added tax is charged on feed ingredients.
“We have prepared the document which indicates the overall problem and feasibility assessment,” said Fikru Regassa /PhD/, state ministry of Agriculture to capital, adding that the ministry has completed the preparation of the document which soon will be submitted to the ministry of finance and other government stakeholders.
The increase in the price of feed triggered by the VAT policy led to a 50% drop in sales of manufacturers relying on imported raw materials and 20% for companies that procured their inputs locally. Price trends of feed ingredients taking base year of 2019/20 and 2021 in average has increased with more than 70 percent as the people on the sector express, while price change of compound feeds shows average increase of more than 65 percent
“Animal feed is a by-product of grains and crops, including corn, soybeans, sorghum, and barley which are raw materials free from tax,” said Fikru, “yet animal feeds which are by products of this products are taxed which is not fair.”
As he said the whole purpose for the preparation of the document is to fully remove Tax and duties imposed on animal feed, and it is widely believed that removing the tax could make the market more accessible.
Currently, the feed industries are operating less than their capacity mainly due to limited demand for processed compound feeds, which could be due to increased price of factory mixed compound feeds because of value added tax charges. “If we see the economic impact of removing the Tax, the profit we get from production is better than taxes, as it will encourage manufacturers,” explained Fikru.
If the document is approved by the ministry of finance, it is expected to: increase animal feed manufacturers, curb the high prices, and promote growth in agriculture, by ending an increase in the price of feed in that country. “Furthermore, it is expected to lead to a decrease in the selling price of the feeds, making them affordable to the farmers, hence contributing positively to the growth of the agricultural sector,” elaborated the state minister.
Despite its contribution to the economy and small holders’ livelihood, the production system is not adequately market-oriented and livestock productivity remains very low due to various constraints that include poor nutrition and disease prevalence, besides unfair taxation. These problems are compounded by inefficiencies in the input and output marketing. Among these constraints issues related to feed are the most remarkable ones.
Ethiopia has a large livestock population and diverse agro-ecological zones suitable for livestock production and for growing diverse types of food and fodder crops. However, livestock production has mostly been subsistence oriented and characterized by very low reproductive and production performance.
In 2019 The Ministry of Finance (MoF) approved the imports of agricultural mechanization, irrigation and animal feed technologies, and equipment to be tax-free. This tax reform is aimed at enhancing the agriculture sector by removing duty and taxes on imports of farming machinery, irrigation and drainage equipment as well as animal feed ingredients and technologies; providing incentives to invest in the importation and local production of these technologies.
In order to facilitate farmers’ access to agricultural technologies which will ensure food security at the household level and national nutrition development, the MoA is expected to submit the tax removing request soon.