B.E. Assessment

DAI pesa - Policy and Taxes in the Tanzanian Cashew Industry 2004

    The DAI Private Enterprise Support Activities (PESA) project supported by USAID in Tanzania aims to promote the development of micro and small enterprises in a variety of sub-sectors. DAI PESA commissioned ECIAfrica to conduct a study on the cashew nuts subsector. Although cashew nuts are Tanzania's leading agricultural export, only 17% of production is processed to add value in Tanzania. The rest is sold in raw form to India. Private businesses recognize the potential gains of increasing processing capacity and reducing dependence on the Indian market. But the lack of a sub-sector strategy and a negative policy environment discourage investment in the cashew industry and constrain long-term growth. The study recommends that DAI PESA compare the policy environment in Tanzania against other cashew growing countries and contribute to an overall strategic plan for the industry.

    This recommendation prompted a second study, Policy and Taxes in the Tanzanian Cashew Industry, prepared for DAI PESA by Abt Associates. It reviews the charges applied to the cashew industry in Tanzania, explores their impact on international competitiveness and local development, and considers opportunities to better align them with stated Government policies of export promotion, employment creation, and poverty alleviation. While many other countries lend support to their cashew industries, Tanzania draws revenue from the industry and requires that it fund its own development. Cashew farmers are more highly taxed under the current system of levies and contributions than any other sector of society in Tanzania. The study compares the tax/levy provisions in Tanzania against each of the major cashew producing countries and considers alternative scenarios using a simulation model to explore the potential and limits of tolerance in the industry.

    Methods for info gathering
    Sub-sector study: literature review, field visits, interviews with key stakeholders. Policy and Taxes paper: desk study, field study, stakeholder workshops.

    Summary of results
    The Policy and Taxes study concludes that a reduction in the effective tax rate is achievable and can lead to growth of the cashew nut industry if additional local processing is able to yield higher net prices to farmers. Additional detailed recommendations provide general direction for the industry and specific guidance on changes to the revenue collection process.