Govt mulls withdrawing advance tax on farm machinery

The government plans to withdraw the advance tax (AT) levied on the import of rice transplanters, agricultural drier machines, all types of sprayers, and potato planters in the upcoming  national budget aiming to modernise the agriculture sector.

Currently, these four types of farm machinery are subject to a 5% advance tax at the import stage.

This move is aimed at encouraging farmers to invest in agricultural machinery, enabling them to timely plant and harvest crops while removing concerns about the availability of farm workers, officials of the finance ministry have told The Business Standard.

At the same time, the government plans to introduce a 15% value-added tax (VAT) on the import of basmati rice to provide protection for local rice farmers as well as prevent the misuse of government policies, according to the officials.

Previously, only fortified basmati rice imports were subject to the 15% VAT rate. However, in the upcoming fiscal year, non-fortified basmati rice imports will also be brought under the same VAT rate to address the issue of dishonest traders who import fortified basmati rice under the guise of non-fortified basmati, officials told TBS.

Finance ministry officials have clarified that advance tax at the import stage is a form of VAT, with the highest rate set at 5%.

The proposals to revise the tax structure on farm machinery imports and basmati rice were discussed in a recent meeting chaired by Finance Minister AHM Mustafa Kamal and presented to Prime Minister Sheikh Hasina for approval last Sunday. The proposals will now undergo a legal review by the law ministry before being included in the budget, which is set to be presented in the parliament on 1 June.

Experts in the agricultural sector have praised the government's initiatives to promote mechanisation and boost the commercial viability of agriculture.

Dr Mohammad Saidur Rahman, professor of agricultural economics at Bangladesh Agricultural University, commended the government for its efforts to make agriculture more profitable and highlighted the sector's resilience demonstrated during the Covid-19 pandemic.

He further emphasised that mechanisation would reduce production costs and benefit both farmers and consumers by facilitating a transition to commercial agriculture from traditional practices.

FH Ansari, managing director, and chief executive officer of ACI Agribusiness, expressed optimism about the impact of the government's decision to withdraw the advance tax on farm machinery imports.

He stated that this move would enable farmers to obtain machinery at lower prices compared to the current market rates.

Ansari also mentioned that Bangladesh has a thriving Tk1,200 crore agricultural machinery market, which experiences an annual growth rate of 10%.

Govt facilitating farm mechanisation

With the government focusing on mechanising farm work and providing subsidies on equipment purchases, local entrepreneurs are gearing up to manufacture heavy agricultural machinery. 

The government is implementing a Tk3,020 crore farm mechanisation project aiming to provide 52,000 agro equipment to farmers within 2025 at subsidised rates. The five-year agricultural mechanisation project started in fiscal year 2020-21.

In FY21, the government distributed 2,300 different agro machinery, including 1,762 combine harvesters, 379 reapers, and 34 rice transplanters at a cost of Tk208 crore among farmers under the agricultural mechanisation project. In the current fiscal year, there is an allocation of Tk680 crore in this regard.

Under the government's farm mechanisation project, farmers are getting up to 50% subsidies – 70% in the haor region – on the prices of machinery, such as combine harvesters, reapers, transplanters, etc.

Present situation of farm mechanisation

Farmers in the country use power tillers and tractors for tilling about 95% of their land. However, the use of machinery has not increased in planting, harvesting, or threshing.

According to the Department of Agricultural Extension, planting machines are used on only 1% of land and for harvesting and threshing the rate is 3%.

According to the Ministry of Agriculture, the government started focusing on mechanisation of agriculture in 2010 with a Tk150 crore project.

Later, in FY13, the government started another project at a cost of Tk339 crore.

In recent years, the use of different types of threshers has increased in the country along with power tillers and tractors. Currently, about 1,500 threshers are being used.

On the other hand, about 2,200 reapers are being used to harvest paddy.

Combine harvesters are used for harvesting, threshing, and packing of paddy. The use of this device started in the country in FY17. In that year, 78 combine harvesters were sold. At present, about 3,000 combine harvesters are being used.

Bangladeshi farmers started to use rice transplanters for planting paddy in FY17. Currently, only 148 rice transplanters are being used in the country.

Most of the agricultural machinery in the country comes from China, India, Indonesia, Japan, and Cambodia.