Depending on the turnover, and the nature of activities that farmers engage in, they are liable to register for, and pay, one or more taxes that are administered in Zambia. In all cases, however, they have to register for a Taxpayer Identification Number (TPIN) and, either Turonver Tax, Income Tax (TOT) or Income Tax and Value Added Tax (VAT). A Taxpayer identification Number (TPIN) is manadatory if a person operates a bank account or would like to engage in a transaction that involves dealing with the Zambia Revenue Authority (ZRA), such as clearing imported goods, whether or not the goods attract taxes or obtaing tax ckearance for change of ownership of property such as land, shares in a company, royalties, interlctual property, motor vehicles, etc.
Farmers with Annual Turnover Below K800,000
Farmers with annual turnover falling below K800,000 are not mandated to register for Income Tax and VAT. They are instead mandated to register for a presumptive income tax called Turnover Tax (TOT). Farmer in this category may incur VAT in the process of making their supplies but they cannot claim it back. Similarly they are not allowed to deduct expenses from their gross sales to arrive at taxable income for TOT purposes. VAT and all other expenses make up their production costs and they are cascade into their selling prices. This in some cases reduces the farmers’ profitability especially as their turnover begins to reach the Income Tax and VAT registration thresholds of K800,000 per year.
Farmers in this category that may find it convinient to regsitered for VAT and become eligible for claiming the VAT that they incurr in the process of making their supplies may do so under the voluntary VAT registration scheme. The other reason a farmer would want to regsiter for VAT is when they supply taxable produce to businesses that are registered for VAT and prefer to deal with VAT registered businesses only so that they can claim the VAT on inputs. When farmers in this category opt to regsiter for VAT, they must de-register for TOT and register for Income Tax. Voluntary regsitration is only valid for a tax year, that is, from January or any time that one registers during the year to December. Farmers that register for voluntary registration must remeber to apply for renewal if they still want to continue with voluntary VAT registration in the next tax year. If they want to discontinue with VAT registration in the following tax year, they must inform the tax office and apply for de-registration of Income Tax and then apply for TOT registration.
Other taxes that a farmer might have to register for are:
- Pay as You Earn if they employ labor and pay wages or salaries
- Withholding Tax if they make any payment that attract withholding taxes such us, rent, management consultancy fees, etc.
- Property Transfer Tax if they sale property such as land and shares in a business, or royalties and intellectual property.
Farmers whose land has title deeds may have to pay land rates, administered by the Ministry of Lands (MOL). Land Rates do not require seperate registration other than having the land regsitered with the MOL and titled.
Farmers with Annual Turnover equal to K800,000 and Above
Farmers whose annual turnover is K800,000 and above are mandated to register for Income Tax instead of TOT. If their annual turnover on supplies that atract VAT is also K800,000 and above, they must also register for VAT.
There are special VAT and Income Tax provisions for farmers. These are explained below.
Special VAT Provisions
Being a priority sector, farming business enjoys several VAT incentives in form of exemption and zero-rating. The difference between zero-rating and exemption is that with zero-rating, all the VAT that is incurred in the process of making the supply is claimable. This makes the final selling price free of any tax element. This reduces the cost of production as well as the price of the produce. With exemption on the other hand, none of the VAT that is incurred in the process of making the supply is claimable. The effect is increased production cost and increased price of produce. The tax is, added to their production costs and is included in the selling price, The final price, has a tax element in it. Zero-rating, is a better option for farmers with standard rating being the next best as this too would allow the farmer to claim all the VAT that they incur in production.
Farming outputs that are exempt include:
- Fresh edible vegetables and fruits,
- Maize, nuts, Soya beans, millet, cassava, sorghum and other cereals, including flours produced from the cereals, nuts, beans and tubers
- Wheat, cotton seed, seed cotton, lint, baby corn, sweet corn, mange-tout peas (snow peas), sugar snaps, fresh or chilled beans (not dried), carrots, courgettes, patty pans, gem squash, butternut, peppers, leeks, chilies, asparagus, okra, spring onion, peas, tender stem broccoli, purple sprouting broccoli, mini-savoy cabbage, mixed and sliced vegetables or paprika; or gooseberries, passion fruit, and melons.
- Meat and offal of cattle, swine, sheep, goats, game ranch animals and poultry, including eggs, cooked or smoked meat, meat processed beyond cutting, grinding or mincing, including sausages, pate and the fatty livers of geese or ducks or crocodile products.
- Milk, except powdered milk and any milk in cans or tins.
All these agricultural products become taxable if supplied by a restaurant, cafeteria, canteen or like establishment
- Bulbs, seeds and plants for producing agricultural products
- Fertilizers, insecticides, rodenticides, fungicides, herbicides, anti-sprouting products and plant growth regulators and similar products for agricultural use
- Live cattle, swine, sheep, goats, game farm animals and poultry; and
- Animal feed for cattle, swine, sheep, goats, game farm animals, and poultry
Farming equipment and accessories that are zero-rated include:
- Hammer mills
- Maize dehullers
- Two-wheel tractors, including ploughs, harrows, disc harrows, planters, seeders, rippers or sub-soilers, and cultivators of such tractors
- Tractors up to 90HP, including ploughs, harrows, disc harrows, planters, seeders, rippers or sub-soilers, and cultivators of such tractors
- Pump sets
- Knapsack sprayers (agricultural sprayers)
Special Income Tax Provisions
Farming business enjoys a reduced Income Tax rate of 10% on profits. The normal Incpme Tax rate paid by other businesses is 35%. Other than the reduced income tax rate, farming business is subjected to other special treatment, which includes:
- Farm Improvement Allowance
- Farm Works Allowance
- Valuation of Livestock
- Development Allowance
- Averaging Allowance of Farming Income
Farm Improvement Allowance
Farm Improvement Allowance is a special relief that is granted to farmers that undertake farm improvements. The farmers are allowed to expense all of the expenditure on permanent work on farm workers houses and farm fencing, and any building constructed for and used and welfare of employees, and in relation to farming land owned or occupied by the farmer. This means that they are allowed to deduct all the capital expenditure on farm improvements that have been incured in a tax year. The normal treatment for such capital expenditure in other businesses is to depreciate the expenditure, that is, to spread the deductions over a period that is deamed the useful life of the investment. The deduction in the case of workers houses should, however, not exceed K20,000.
Farm Works Allowance
Formworks Allowance is the relief that allows farmers to expense capital expenditure on works such as stamping and clearing, works for the prevention of soil erosion, boreholes, wells and arial and geophysical surveys and construction of dams or embarkments for harvesting water.
Valuation of Livestock
For purposes of determining profits, farmers must value their livestock, other than that bought for stud at standard value adopted by the farmer in his/her first return. Farmers may value livestock bought for stud, at the lower of market value and cost. The farmer may however, choose to value all stock on the same basis at the lower of cost and market value. The decision to base all stock on the same basis is irreversible, once approved.
Adjustments for losses of livestock due to theft or death are allowed, but not due to own consumption.
Farmers that grow tea, coffee, banana plants, citrus and other trees, or any similar plants are entitled to development allowance. They can deduct 10% of the expenditure incurred on growing the plants from gross income in an accounting year to arrive at taxable income.
Farmers are allowed to average their income over a period of two years, on application. A farmer can, have his or her income for a year where he/she made a loss and a year where he/she made a profit avaeraged to arrive at taxable income.