Uganda Oil seed Farmers Seek Tax Consessions

18-March-2012

Oil seed producers are calling for a revision of their tax obligations, arguing that palm oil industry has tax concessions that give them an unfair advantage and deprive oil seed farmers of extra income.

The Government signed an agreement with BIDCO in 2003, which included a 25-year corporation tax holiday, a 17-year holiday from VAT, zero import, customs and excise duties on imported equipment and zero withholding tax on interest on loans.

BIDCO, which has gone into limited production, was also promised 36,000 hectares of land to lease, but currently has under 10,000 hectares under palm, which takes about 15 years to mature.

Oil seed producer Mount Meru Millers (Uganda) Ltd based in Lira, is calling for change to the VAT status of oil seed to zero rated.

If their products become zero rated, producers will not be required to add VAT on their output, while being able to claim the VAT they have been charged by their suppliers.

They argue that with this one concession farmers will get a better price for their crop, better income for suppliers and associated industries and allow them to better compete against imports.

"More so most of the farmers come from northern and eastern parts of the country, which have higher poverty rates and have been greatly affected by the war. By granting zero rating of VAT shall not only bring fair competition, but have the effect to improve the production and demand from thousands of farmers whose main source of income is seed oil," Mt Meru argued in a proposal to the finance ministry last year.

The oil seed industry further argues that the benefits of granting this proposal could lead to a foreign exchange savings of up to $100m (sh240b) a year, increased production would promote the consumption of healthy fats and $300m in new investment in the sector.

The Private Sector Foundation of Uganda (PSFU), the lobbying arm for business, is looking into the issue with a view to make recommendations to the Government ahead of this year's budget.

“The point is do you have a level playing field for the farmers? As it is now it means you have a policy that favours farmers who grow palm trees over those that plant oil seeds,” Moses Ogwal, the PSFU’s policy and advocacy director said.
“When you translate this back to seed form - what the farmer is selling, there is a reduction of up to 30% on the price the farmer gets. Meaning you are denying this revenue to farmers,” he said.

Ogwal said it was important that policies that benefit the farmer irrespective of what incentives you give the manufacturers are put in place.

BIDCO management were unavailable to comment on the new initiative and how it might affect their business model.
Mt Meru, which established operation in northern Uganda in 2008 is fronting a variation of the same theme that dogged the initial stages of the startup of BIDCO’s Kalangala project.

At the time BIDCO was setting up almost a decade ago, there was a lot of opposition to the concessions BIDCO was getting, the argument being that they would wipe out the then nascent oil seed industry. Most of Uganda’s edible oil was imported as a semi-finished product from Asia and refined here by local players, a situation that BIDCO’s entrance threatened to scuttle.

The Government and BIDCO argued at the time that the concessions were necessary given that palm trees take 15 years to reach peak production and the extent of the investment planned. The oil seeds plants - like cotton, sunflower and sim sim are at best annual crops.

To date BIDCO has ploughed in more than $130m in setting up plantations on the Kalangala Islands and the largest oil manufacturing complex in Uganda at Masese in Jinja.

By Paul Busharizi: The New Vision Newspaper