Small Businesses and Farmers

Chapter 16 discusses VAT registration thresholds and the treatment of farmers. A high threshold of, say, US$50,000 or higher, is recommended to keep the number of taxable persons manageable. The VAT on exempt small businesses should be confined to the tax on their inputs. Although voluntary registration is an important safety valve to limit economic distortions, a minimum threshold, as in South Africa, below which registration is not possible, is recommended. A generous threshold without further ado would also be appropriate for the agricultural sector, except that small exempt farmers would have to cope with the cascading effects of the input VAT. Voluntary registration would not work in view of low literacy levels, the absence of basic accounts, and the lack of communication. The solution appears to lie in a combination of a reasonably high threshold (the same as for other small businesses) and the zero-rating of major agricultural inputs, which have no alternative use outside the agricultural sector.