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Terms of Reference
Alliance for a Green Revolution in Africa (AGRA)
REQUEST FOR PROPOSALS: COST-BENEFIT ANALYSIS (CBA) TO ASSESS THE OPTIONS TO REFORM IMPORT DUTIES AND VAT SYTEM TO MAKE IT ENCOURAGE AGRICULTURAL MECHANIZATION, IRRIGATION, AND ANIMAL FEED SUB SECTOR DEVELOPMENT AND ASSESS IMPLICATIONS FOR GOVERNMENT REVENUE
Consultancy task: to carry out technical economic impact assessment to support the case for revisiting import duties and taxes on agricultural machinery spare parts, irrigation/drainage equipment, and animal feed ingredients and compound feeds, and reducing the burden of taxes and duties on the sector (including in the form of double taxation on animal feed)
Background:
The Alliance for a Green Revolution in Africa (AGRA) is a not-for-profit organization formed in 2006. AGRA’s mission is to catalyze agricultural transformation in Africa through, innovation- driven and sustainable, productivity increases and access to finance that improve the livelihoods of smallholder farmers.
AGRA is implementing a five year Micro Reforms for African Agribusiness (MIRA) project in Burkina Faso, Ethiopia, Ghana, Nigeria and Tanzania. MIRA will provide these governments with access to high quality local and international technical assistance for identifying, prioritizing and reforming specific agricultural regulations that currently deter or limit private investment in agribusinesses operating in smallholder agricultural value chains. In doing so, the MIRA project will help to build the capacity of African governments to continuously review and reform regulations that unintentionally limit private investment in local agribusinesses operating in the smallholder value chains.
In Ethiopia, MIRA and government counterparts have identified and prioritized 4 reforms:
• Develop and approve a comprehensive contract farming legal framework that supports agro-processing and value addition
• Revisit import duties and taxes on agricultural machinery spare parts, irrigation/drainage equipment, and animal feed ingredients and compound feeds, and reduce their burden
on this sector (including double taxation on animal feed)
• Develop and approve Directive/Guidelines for streamlining of policy processes under which cereals export restrictions are introduced and revoked
• Develop and approve Directives and Technical Guidelines to implement the Seed Proclamation and Council of Ministers Seed Regulation
As part of its support to the Ethiopian Agricultural Transformation Agency (ATA), AGRA wishes to undertake a series of economic assessments and legal reviews to build the case for various reform options. The reviews are intended to help the ATA and its Transformation Council, and other relevant government agencies in articulating policy, legal, and regulatory review options.
Context for this consultancy work
As stated above revisiting import duties and taxes on agricultural machinery spare parts, irrigation/drainage equipment, and animal feed ingredients and compound feeds, and reducing the burden of taxes and duties on the agricultural sector (including in the form of double taxation on animal feed) is one of the policy reform area that MIRA supports in Ethiopia.
The Government of Ethiopia policies and strategies give priority and special emphasis to the agricultural sector. However, some of taxes and duties applying to the agricultural sector are deemed to have constrained agricultural transformation. Taxes and duties that are deemed to have limited the growth of the sector include custom duties and taxes on agricultural machinery spare parts, irrigation/drainage equipment, and animal feed ingredients and compound feeds.
The Government of Ethiopia has been promoting agricultural mechanization as one of the essential factors to bring about smallholder agricultural transformation and has been encouraging investment in mechanization including granting duty free import of agricultural machinery. However, the duty free import does not apply to import of agricultural machinery spare parts. They are currently subject to import duties of 25 % and other import taxes. Taxes on imports of agricultural spare parts have dampened incentives to invest in tractor importation, service provision and custom hire operations. Certain actors in the sector believe that that eliminating duties applied to agricultural machinery spare parts would encourage maintenance and extend the life span of machinery. It is also believed that lifting of custom duties and other taxes imposed on imports of raw materials by domestic agricultural machinery assemblers would encourage production of agricultural machinery locally, instead of importing from abroad as is the case currently.
By the same token, Ethiopia is using a very small proportion of its high irrigation potential and agricultural production continues to be mainly dependent on rainfall. The Government has given particular emphasis on the tremendous role of irrigation in transforming smallholder agriculture and the current drought once again highlighted the need for Ethiopia to move away from rainfall dependent agriculture and expand and increase use of irrigation by smallholder farmers. Customs duties imposed on irrigation/drainage equipment is passed onto smallholder farmers with a relatively higher irrigation /drainage equipment retail price.
The case of animal feed is not different. High cost and limited availability of good animal feed for forage and fodder is one of the major constraints in livestock sector development. Due to severe shortage in the country, some animal feed ingredients and compound feed are being imported to meet the demand for quality animal feed. Import duties levied on animal feed ingredients and compound feeds has made the price of quality animal feed relatively expensive. Moreover, other taxes including double Value Added Tax (VAT) that are applied on animal feed has contributed to make animal feed price relatively high. These import duties and taxes have limited the development of livestock production and competitiveness.
Objectives of the Consultancy:
The main objective of this consultancy is to analyze taxes and duties currently applied to the agricultural sector, particularly the machinery spare parts, irrigation and drainage equipment and animal feed, and develop a policy reform proposal with the aim of reducing the burden of taxes
and duties on the promotion and development of agricultural mechanization, irrigation, and
animal feed sub sector in Ethiopia.
Specifically, the consultant will perform the following tasks:
• Review taxes and duties applicable to agricultural machinery spare parts, irrigation/drainage equipment, and animal feed in Ethiopia and make a comparative analysis with best practices from countries more or less sharing similarities with Ethiopia
• Review and analyze how the tax/duties incentives and/or disincentives have affected the adoption and use of these improved agricultural technologies.
• Develop policy alternatives to improve the incentives and increase the adoption and use of these agricultural technologies and conduct benefit-cost analysis of each policy alternative and make a policy recommendation.
• Make recommendations on the administration of agricultural machinery spare parts, irrigation/drainage equipment, and animal feed tax incentives, agricultural taxes in general, and management of the processes involved in the granting of the tax incentives, and agricultural taxation as a whole;
• Review the relevant laws and procedures of administering agricultural machinery spare parts, irrigation/drainage equipment, and animal fee taxes and also incentives in Ethiopia and provide recommendations for improvement; and produce a report with actionable recommendations
Scope and approaches of the consultancy
The contractor shall undertake the necessary economic and legal, and revenue implications analyses of existing duties and taxes applicable to agricultural machinery spare parts, irrigation/drainage equipment, and animal feed using the following approaches:
• Review the existing system (both the policy and administration) of taxing agricultural machinery spare parts, irrigation/drainage equipment, and animal feed inputs and animal feed in Ethiopia
• Develop a comprehensive inventory of all the current agricultural machinery spare parts, irrigation/drainage equipment, and animal feed tax incentives and
concessions offered in Ethiopia, drawing from the relevant laws, regulations and
practices in place, and compare them with those in other African Countries;
• On the basis of the inventory, quantify the costs of agricultural machinery spare parts, irrigation/drainage equipment, and animal feed input and animal feed
incentives (tax expenditures)
• Carry out survey of investors (including local assemblers, importers and distributers, machinery service providers, and users (including smallholder farmers and cooperatives) in the agricultural machinery (and machinery spare parts, irrigation/drainage equipment, and animal fee sector, and use the survey results to feed into the cost/benefit analysis of agricultural machinery spare parts, irrigation/drainage equipment, and animal fee incentives in Ethiopia.
• Carry out a cost-benefit analysis of agricultural machinery spare parts, irrigation/drainage equipment, and animal feed incentives;
The contractor is also expected to carry out the following tasks:
• Present a kick-off meeting to clarify expectations and agree approach;
• Familiarize consultancy work team with salient details of the proposed consultancy
• Identify and review relevant legislations relevant to proposed reforms;
• Carry out the cost-benefit and government revenue implications analysis
• Present initial findings to the ATA and AGRA MIRA country team;
• Revise and complete the cost-benefit and government revenue implications analysis in line with feedback;
• Prepare a written report summarizing findings for the analysis;
• Present findings to the ATA and AGRA MIRA country team and relevant stakeholders
Outputs/Outcome:
An inception report outlining the methodology used for the study and the work plan for developing the deliverables in two weeks from start of the consultancy work
Initial presentation of findings to ATA and AGRA MIRA country team of a written report on the existing agricultural machinery spare parts, irrigation/drainage equipment, and animal feed tax system, inventory of agricultural machinery spare parts, irrigation/drainage equipment, and animal feed tax incentives, and also a cost and benefits analysis of agricultural machinery spare parts, irrigation/drainage equipment, and animal feed tax incentives in Ethiopia; the report should be based on the experience internationally must include a policy note based on the recommendations
Final presentation of findings to ATA ,AGRA MIRA country team, and relevant stakeholders
All deliverables should be succinct but informative, and key points should be easily understandable to a wide range of stakeholders. Deliverables should be submitted in English
Competencies required
AGRA wishes to contract a firm or team of tax experts and agricultural development practitioner(s) including economists, accountants, public finance specialists etc with the following skills and qualifications:
• Extensive experience in the context of enabling legal and regulatory environment for agricultural development in Africa preferably in Ethiopia
Previous experience of conducting legal reviews of regulations and/or legislation in agricultural policies, laws and regulations
• Experience in the field tax policy and administration, tax consulting, or tax law in Ethiopia
• Excellent knowledge of tax incentives issues in the agricultural sector in Ethiopia
• Ability to present complex problems in easy-to-understand language
• Experience of working with the ATA or any other government agency(ies) with agriculture sector mandate
• Country presence in Ethiopia
Duration of the assignment: 3 months
Reporting arrangements: The consultant will report to AGRA’s Head of Policy and Advocacy throughout the engagement period. The consultant will also directly report to ATA/ MIRA Ethiopia team and will provide a biweekly updates on progress to a steering committee to be consisted by ATA.
Proposal submission: Taking into account the TOR, the consultancy candidate should submit a proposal containing the following elements:-
• Understanding of the assignment
• Outlining past experience of the firm/ consultant (Please provide a minimum of two concrete samples of similar work done for other organizations)
• Methodology proposed for the assignment (including tools proposed for the assignment)
• Work plan that includes clear timelines for the assignment
• Summary resume(s) of key staff who will work on the AGRA account
• Consultancy fee for undertaking the assignment and budget breakdown
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