The document discusses the meaning and types of agricultural taxes and subsidies. It notes that agricultural tax can be levied directly on income, assets, or capital gains. Indirect taxes include levies on irrigation and equipment. The main forms of agricultural subsidies discussed are input subsidies (e.g. fertilizer, irrigation, power, seeds), price subsidies, and infrastructural subsidies. The document also provides statistics on Rwanda's GDP from agriculture.

2. Meaning of Agricultural Tax
 Tax is a certain amount which have to be paid to
the Government by the individuals. Tax paid
according to some percentage on the income value of
the individual.
 The Agricultural Tax means the tax paid according to
the Agricultural income.

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 Agricultural tax can be levied in a direct form on
income, assets as well as on capital gains.
 Indirect taxes constitute levies on irrigation, drainage,
machinery and equipments. Access levied on acreage
of crops or based on their market value or livestock or
even fisheries can also be termed as a direct tax.

4. Need of Agriculture Taxation
 The need for taxing agriculture is more acute in
developing countries because of its higher share in the
GDP. Many nations as a measure of policy exempt
agricultural income and even capital gains through
sale of agricultural land from tax, provided such
capital gain is re-invested in the acquisition of
agricultural assets within a stipulated period of time. It
has to be offset however by increasing land taxes
which generally are levied at provincial or local levels.

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 It will be pertinent to discuss the two most prominent
form of agricultural taxes which are prevalent in most
parts of the world.
 1. Income or profits from agricultural operations.
 2. Taxes on agricultural assets or property such as
land, livestock, fishing zones etc.

6. Agriculture Income
 Agricultural income or profits are calculated on an
annual basis under the accrual system of accounting.
Such income/profits accrue through sale of
agricultural produce or provision of services like
supply of labor, storage &transportation, processing
etc. Historically though taxes on income/profits have
been levied based on other criteria such as annual
turnover or the cadastral(survey) system where the
revenues/profits are calculated on the area of land, soil
quality, composition of livestock etc.

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 There have been arguments both in favor of and
against imposition of such taxes in different countries.
They are listed below.
 Proponents of income/profit tax:
1. Increase in prices of agricultural goods and services.
2. Concealment of Income.
3. Increase in government revenue
4. Increase in tax base
5. Better utilization of land resources

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Opponents of income/profit tax:
1. Assessment can be a tedious job
2. Not suitable for subsistence farming
3. Complicated taxation system
4. Farmers will find it burdensome
5. Will reduce employment
6. Reduction in cropping area

9. Meaning of Subsidy
 Subsidies are just the opposite of taxes. Through taxes
the government takes away money from people,
subsidies transfer money from the government to the
people.
 An agricultural subsidy (also called an agricultural
incentive), is a government incentive paid
to agribusinesses, agricultural organizations
and farms to supplement their income, manage the
supply of agricultural commodities, and influence the
cost and supply of such commodities.

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 Examples of such commodities include: wheat, feed
grains (grain used as fodder, such as maize or corn,
sorghum, barley and oats), cotton, milk, rice, peanuts,
sugar, tobacco, oilseeds such as soybeans and meat
products such as beef, pork, and lamb and mutton.

11. Asset or property tax in agriculture
Asset or property tax in agriculture is levied on
the following basis:
1. Fixed assessment
2. Fluctuating assessment
3. Fluctuating assessment with a sliding scale
4. Fluctuating assessment with sliding scale for some
types of crops and livestock and fixed for others.

12. Rationale for Subsidies
 For a poor agriculture-dependent country like Rwanda, the
reasons for agricultural subsidies are easily understood.
Since many farmers are close to the subsistence level of
living, the subsidies seek to help them carry out their
production and consumption activities in a better way.
Besides this fundamental objective there are several other
reasons for providing subsides:
1. In order to increase productivity, subsidies may be given
on inputs, such as seeds, fertilizers and irrigation, as a
result of which they become cheap for the farmer.

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2. For introduction of improved farming inputs and
technology the government may provide subsidized
farming machinery (like harvester, tractor, irrigation
devices) and High Yielding Variety (HYV) seeds.
3. In order to promote the production of certain crops,
price and input subsidies may be granted. Subsidies
can be in the form of:
i) cheaper inputs,
ii) cheaper transportation facilities for marketing of
the harvest,

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 iii) storage facilities, and
 iv) higher procurement prices offered by the
authorities than the current market price.
4. Subsidies can be granted to the farmers to produce for
exports. This type of subsidies helps the farmers in
becoming more competitive in the global market and
in gaining a larger share of the global demand.

15. Types of Subsidies
There can be several forms of subsidies, each of which
can be used for a definite purpose. We discuss them
below in brief :
 a) Input Subsidies: Subsidies can be granted through
distribution of inputs at prices that are less than the
standard market price for these inputs. The magnitude
of subsidies will therefore be equal to the difference
between the two prices for per unit of input
distributed. Naturally several varieties of subsidies can
be named in this category.

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i. Fertilizer Subsidy: Distribution of cheap chemical or
non-chemical fertilizers among the farmers. It amounts
to the difference between price paid to manufacturer of
fertilizer (domestic or foreign) and price received from
farmers. This subsidy ensures:
i) cheap inputs to farmers,
ii) reasonable returns to manufacturer,
iii) stability in fertilizer prices, and
iv) availability of fertilizers to farmers.
In some cases this kind of subsidies are granted through
lifting the tariff on the import of fertilizers, which
otherwise would have been imposed.

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ii) Irrigation Subsidy: Subsidies to the farmers which
the government bears on account of providing proper
irrigation facilities. Irrigation subsidy is the difference
between operating and maintenance cost of irrigation
infrastructure in the state and irrigation charges
recovered from farmers. This may work through
provision of public goods such as canals, dams which
the government constructs and charges low prices or
no prices at all for their use from the farmers. It may be
through cheap private irrigation equipment such as
pump sets.

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 iii) Power Subsidy: The electricity subsidies which
implies that the government charges low rates for the
electricity supplied to the farmers. Power is primarily
used by the farmers for irrigation purposes. It is the
difference between the cost of generating and
distributing electricity to farmers and price received
from farmers. Power subsidy acts as an incentive to
farmers to invest in pump sets, bore-wells, etc.

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 iv) Seed Subsidies: High yielding seeds can be
provided by the government at low prices. The
research and development activities needed to
produce such productive seeds are also undertaken by
the government, the expenditure on these is a sort of
subsidy granted to the farmers.

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V) Credit Subsidy: It is the difference between interest
charged from farmers, and actual cost of providing
credit, plus other costs such as write-offs on bad loans.
Availability of credit is a major problem for poor
farmers. They are cash strapped and cannot approach
the credit market because they do not have the
collateral needed for loans. To carry out production
activities they approach the local money lenders.
Taking advantage of the helplessness of the poor
farmers the lenders charge exorbitantly high rates of
interest.

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Many times even the farmers who have some collateral
cannot avail loans because banking institutions are largely
urban based and many a time they do not indulge in
agricultural credit operations, which is considered to be
risky. To tackle these problems the government can
provide:
(1) more banking operations in rural areas which will
advance agricultural loans, and
(2) the interest rates can be maintained low through
subsidization schemes, and
(3) the terms of credit (such as collateral requirements) can
be relaxed for the poor.

22. b. Price Subsidy
It is the difference between the price of food grains at
which government/co operatives procures food grains
from farmers, and the price at which government /
cooperatives sells to traders. The market price may be
so low that the farmers will have to bear losses instead
of making profits. In such a case the government may
promise to buy the crop from the farmers at a price
which is higher than the market price. The difference
between the two prices is the per unit subsidy granted
to the farmers by the government.

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 The output and profits would rise. The price at which
the government buys crops from the farmers is called
the procurement price. Such procurement by the
government also has a long run impact. It encourages
the farmers to grow crops which are regularly
procured. As discussed earlier, continuous
procurements of food grains by the government has
benefited the farmer.

24. c. Infrastructural Subsidy
 Private efforts in many areas do not prove to be
sufficient to improve agricultural production. Good
roads, storage facilities, power, information about the
market, transportation to the ports, etc., are vital for
carrying out production and sale operations. These
facilities are in the domain of public goods, the costs of
which are huge and whose benefits accrue to all the
cultivators in an area.

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 No individual farmer will come forward to provide
these facilities because of their bulkiness and inherent
problems related to revenue collections (no one can be
excluded from its benefit on the ground of
nonpayment). Therefore the government takes the
responsibility of providing these and given the
condition of Indian farmers a lower price can be
charged from the poorer farmers.

26. d. Export Subsidies
 This type of subsidy is not different from others. But
its purpose is special. When a farmer or exporter sells
agricultural products in foreign market he earns
money for himself, as well as foreign exchange for the
country. Therefore, agricultural exports are generally
encouraged as long as these do not harm the domestic
economy. Subsides provided to encourage exports are
referred as export subsides.

27. Rwanda Statistics
 GDP From Agriculture in Rwanda decreased to 479
RWF Billion in the third quarter of 2018 from 481 RWF
Billion in the second quarter of 2018. GDP From
Agriculture in Rwanda averaged 356.37 RWF Billion
from 2006 until 2018, reaching an all time high of 484
RWF Billion in the first quarter of 2018 and a record
low of 237 RWF Billion in the first quarter of 2006.