FBC Securities has highlighted that the recent upward adjustment of the tax-exempt threshold on withholding tax for agricultural commodities is poised to enhance farmers’ profitability and earnings yield. In their analysis of the 2024 national budget, FBC emphasized that this measure serves as a catalyst for increased agricultural production and heightened investment in the sector.
The revised tax-exempt threshold is anticipated to positively impact farmers’ cash flows, potentially leading to improved working capital. This, in turn, enables farmers to make more significant investments in their operations or address immediate financial requirements, creating a favorable environment for agricultural development.
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In the budget announcement, Finance, Economic Development, and Investment Promotion Minister Mthuli Ncube emphasized the need to support smallholder and subsistence farmers, particularly in delivering grain to the Grain Marketing Board and other commercial buyers. The proposal involves increasing the tax-exempt threshold for withholding tax on agricultural commodities, including soybeans, sunflowers, groundnuts, and cottonseed, from US$1,000 per annum to US$5,000 or the equivalent in local currency.
Renowned agriculture economist Dr. Renneth Mano regarded this adjustment as potentially the most significant positive news for agriculture in the budget. He commended the Minister’s bold decision to trim the agriculture budget share from 8.5 percent to 7.7 percent, acknowledging the AU Abuja Declaration, which urges African countries to allocate at least 10 percent of their national budget to agriculture.
FBC Securities also observed that the increased tax-free threshold, encompassing bonuses, provides income relief for employees. The subsequent rise in consumer spending, stemming from this intervention, has the potential to contribute to overall economic growth.
Regarding the conversion of civil servants’ COVID-19 and cushioning allowances into pensionable salaries, FBC noted potential benefits and drawbacks. While the shift may result in higher pension benefits for employees, it also triggers a tax liability, as the allowances, which were formerly tax-exempt, now become subject to taxation when converted into salaries.
