Supporting the Policy Enabling Environment for Development

Tax Reform for Agriculture

The Autonomous Tax is a 35 percent tax on non-documented expenses levied under the Value-Added Tax (VAT) code, on transactions made with persons not registered within the tax system. In the agriculture sector, Autonomous Tax is required for firms buying from smallholder producers (almost 5 million farmers) who do not have tax registration and cannot provide receipts.  This additional 35% cost is a serious barrier to sourcing agriculture products from smallholders.   The Tax Authority (AT) has held the position that all smallholder farmers should register under the Simplified Tax for Small Taxpayers (ISPC - Imposto Simplificado para Pequenos Contribuintes) regime. However, in rural areas, uptake of the ISPC has been very low due to low rates of literacy, lack of information, lack of desire to engage with the government, lack of ID documents that prevents tax registration, and the need for any registered ISPC-payer to travel long distances to pay taxes.

USAID SPEED is working with the Confederation of Business Associations (CTA) and the Tax Authority (AT) to better understand the Autonomous Tax problem and generate solutions.  Since most smallholders fall below the minimum income threshold (36x minimum wage) that would require tax payments, purchases from these smallholders do not require the payment of Autonomous Tax.  USAID SPEED is providing support to identify mechanisms for buyers to fulfill their requirements under the tax code when buying from tax-exempt smallholders.  This should have benefits for increasing business registration among currently informal buyers and sellers.