The new law passed by the current government regarding the elevator from ten percent to fourteen percent has created a common worry among farmers and agricultural firms throughout the country.
This change in policy aimed at increasing revenues is likely to impose a significant impact on the agricultural activities which mainly involves the use of tractors in farming.
Implementing sales tax hike may deter investment and innovation in agriculture that is bound to slow the rate of growth in agricultural sector, as well as raising the overall cost of production by increasing the cost of inputs to farmers.
Immediate Impact on Farmers
Industry Response
This time, the sales tax is also increasing, and hence agricultural machinery industry is also expected to slow down. Manufacturers and dealers of tractors have been vocal protesting that the higher tax would result into lower sales.
Probably, in an event of a shift down of the demand, the manufacturers might be compelled to limit production, this would mean lay- offs and negative consequences to the economy.
This way, many professionals have opined that with sales tax for tractors raised, there is a great likelihood that the price of tractors, and other related machinery, as well as spare parts, would rise steeply.
This is so because, many farmers are forced to push their purchases to the next fiscal year, or in other cases, they buy second-hand tractors that are not as productive or as long lasting as brand-new ones.
This trend may impede future progress in the process of modernization of the agricultural industry, which is necessary for increasing its productivity and for meeting the future food requirements of the world.
The Broader Economic Picture
Though the government may need supplementary revenues in the from the implementation of a high sales tax density on the tractors, then economy may turn out to be worse off in the long run.
However, agriculture is still an important base of the national economy creating employees for millions of people and constitutes a great percentage in the GDP.
In other words, food security and insecurity in the country could be directly linked to any policy decisions made concerning the production of foods and cash crops in the agriculture sector since the consequences of any policy negative to the agriculture sector is likely to be unilaterally transferable to the other sectors of the economy.
To counterbalance the negative impacts some economists, recommend that government should come up with incentives such as offering rebates or tax exemptions to small scale farm producers.
This would actually go a long way in ensuring that farmers offset the higher costs and continue with the modernization of the sector. Lack of such measures, the increased sales tax on tractors will reduce the growth of agriculture, hence food production and prices.
