Impacts of agricultural taxation in Sub‐Saharan Africa: Insights from agricultural produce cess in Tanzania

This article analyses the economic impacts of agricultural produce cess in Tanzania and compares its effectiveness with alternative reform options relying on its removal or reduction. Produce cess is one of the common forms of agricultural taxation in Sub‐Saharan Africa. This analysis is performed using the farm‐household model FSSIM‐Dev, which is applied to a country representative sample of 3134 individual farm households taken from the 2012/2013 Tanzania National Panel Survey. Simulations show that the current produce cess is rather high and its removal or reduction would increase production intensity and boost farm income, ranging between +2% and +21% depending on options and regions. These positive impacts are driven by land productivity improvement rather than area reallocation. The largest impacts are experienced in northern and western highlands. Large farms and farms specialized in cash crops tend to gain more from the abolishment or reduction of produce cess. The increase in both production and income is, however, not sufficient to significantly reduce rural poverty and improve nutrition security. Finally, results show that a uniform cess rate of 1% for all crops seems to be the most appropriate policy option. It gives the best trade‐off between government revenue loss and farmers’ economic gain.