The government has given in to demands by local agro-manufacturers and millers to have the Value Added Tax (VAT) on processed animal feeds and input products, dropped, The New Times has learned.

In a letter dated February 25, 2015, a copy of which The New Times has seen, Minister of Finance and Economic Planning Claver Gatete wrote to his counterpart, Geraldine Mukeshimana of Agriculture and Animal Resources informing her of the decision.

"Understanding that the exemption should aim at reducing the price of animal feeds in the domestic market and benefit the farmers thereby improving livestock production and competitiveness, the ministry accepts the inclusion of processed animal feeds on the list of agricultural products exempted from VAT,” the letter reads in part.

The letter further instructed the ministries of Agriculture and that of Trade and Industry to closely monitor the developments and ensure that the exemption benefits the final users, who’re the farmers.

Although the current VAT law already acknowledged the importance of exempting agricultural inputs, they didn’t include animal feeds and inputs such as miller’s brand, the hard outer layers of cereal grain.

The decision by the ministry is supposed to take immediate effect with Rwanda Revenue Authority (RRA) ceasing to collect VAT on the affected products although this was yet to happen by last week.

"As the implementing agency of the government, we can’t apply the new Ministerial Order without an updated list of animal feed products to be exempted. This has to be provided by the Ministry of Agriculture,” said Aimable Kayigi Habiyambere, the RRA commissioner for domestic taxes, on Thursday, last week.

But Tony Nsanganira, State Minister for Agriculture, said last week that the ministry sent the list of the products to be exempted to the Ministry of Finance which would analyze it before notifying the tax body, accordingly.

When contacted, Amina Rwakunda, an official at the Ministry of Finance, said the list of commodities was received and that the ministerial decision should be ready for implementation.

Lobbying victory

Since last year, the millers through the Private Sector Federation (PSF), have been quietly lobbying the Ministry of Trade, Ministry of Agriculture and that of Finance to have the duty dropped arguing that it was counter-productive.

On December 22, 2014, Minister Gatete met chief executives of the country’s top milling companies including Claude Mansell of Minimex, Shumei Lam of Poultry East Africa, Jean Paul Mutalikanwa of Prodev Rwanda and Herbert Kwizera of Premier Animal Feeds.

Others in attendance were Jean Claude Ruzibiza of Rwanda Poultry Industry Association, Nick Barigye of Mount Meru Soyco Ltd and Mathew Karugarama from Zamura Feeds Limited.

During the meeting, the millers submitted their arguments at the end of which they were asked to present a business case explaining how VAT was a burden and recommended policy options they wanted the government to consider. They did.

"The bottom line is that these livestock feeds and inputs remain expensive, maybe even prohibitively expensive to the farmers, when 18 per cent VAT is levied, this undesirable outcome discourages their usage by farmers,” the millers argued in their policy proposal.

As a result, the millers argued that farmers have been circumventing these expensive animal feeds manufactured by local factories by resorting to informally made feeds which were in many cases substandard and posed serious health hazards to animals.

But the informal animal feeds industry also created a competition problem with the millers arguing that because VAT made their products expensive, it gave business opportunity to the informal millers whose products were cheap to most farmers.

So they wanted the tax dropped; not only to level the competition but also to encourage farmers to buy properly processed feeds that would improve the productivity of their livestock as the government wants.

Initially, the government reacted by instructing the Ministry of Agriculture to conduct a study into the millers’ problem and come up with recommendations that would guide the Finance Ministry to take a decision on matter.

Dr Théogène Rutagwenda, the Director General of Animal Resources was charged with conducting the study. When contacted last week, Rutagwenda said the study hasn’t been conducted yet.

What it means

Although the decision means government will lose a substantial amount of revenues that have been generated through VAT levied on animal feeds, Nsanganira said the move will be a major boost to livestock production as it will make animal feeds cheaper for farmers.

The Cost, Insurance and Freight (CIA) on all animals feeds imported in 2014 amounted to Rwf276.2 million from total volumes of 577 tonnes.

But those volumes generated just Rwf8.7million in VAT with total duties and other taxes amounting to Rwf14.8 million, according to William Musoni, RRA’s deputy commissioner for customs.

Going by those statistics, the decision to drop VAT will leave only a slight dent to the government’s revenue collection efforts but boost livestock production greatly, said analysts.

Nick Barigye, the chief executive of Rwanda’s Mount Meru Soyco limited in Kayonza, welcomed the move, saying it will make his soya animal cake cheaper hence increased sales.

According to him, the dropping of VAT on the soya animal cake will signify reduction of price per kilo from Rwf495 to Rwf420 a kilogram saving farmers Rwf75.

Barigye’s factory has been selling about 50metric tonnes of feeds per month but this is expected to increase significantly as more farmers will be able to afford the products which many had previously avoided.

Now, assuming farmers were buying the expensive feeds and transferring the VAT burden to the final consumer of their final products such as eggs, meat and milk, market analysts say that dropping the VAT levy should result into cheaper final livestock products for consumers, hence expanding benefits to everyone.

"I buy animal feeds and its true they’re expensive, I am not aware of the new decision but I welcome any such developments that will cut our input costs,” said Placida Kairanga, a poultry farmer in Kicukiro.

Jean Louis Uwitonze, the Director General for planning in the Trade ministry, described the decision as ‘a very important intervention and incentive provided to the local Livestock and Dairy Industries and other related products.’

"It will make livestock sector very competitive by reducing the cost of production, increased production of meat, milk and value addition in processed dairy products, reduced imports and increased exports in regional markets and ultimately lead to reduced trade deficit,” Uwitonze said.

And the Trade ministry has pledged to closely monitor how the exemption is implemented and how it impacts prices of raw materials for farmers through regular inspections of markets/shops where these products are sold.

It’s projected that the decision will improve current farm output in quality and quantity by more than 15 per cent if farmers embrace the use of professionally formulated animal feeds for their livestock.

editorial@newtimes.co.rw