The federal government has granted domestic tractor assemblers exemption from value-added tax (VAT), applying to assemblers importing knocked-down parts. Importers have been exempted from VAT applied to the sale of agricultural machinery since 2020.

Officials say the move is to accelerate agricultural mechanisation. The decision was made to create a level playing field for domestic assemblers and tractor importers, according to a letter signed by Eyob Tekalign (PhD), a state minister for Finance. The letters were issued to the Ministry of Revenues and the Customs Commission.

The decision comes a month after officials of the Ministry of Agriculture (MoA) and the Agricultural Transformation Institute (ATI) submitted a proposal to the Finance Ministry pushing for the exemption of assembled tractors. The initiative is part of a reform in place since 2020 to bolster agricultural mechanisation, according to Mandefro Nigussie (PhD), director-general of the Agricultural Transformation Institute.

Two years ago, the federal government waived taxes and duties on selected agricultural machinery, including tractors, combiners, generators, pumps, irrigation technologies and animal feed processing machinery. Although agricultural machinery use has grown in recent years, rural mechanisation remains low. Less than three percent of the land is ploughed with tractors. Close to 16,000 tractors are operational, and 93pc are imported.

The agriculture sector, providing a livelihood for 80pc of the population, is dominated by subsistence farming. Eighteen million rural households are farming 22.8 million hectares of land. Studies indicate that up to 90pc of farm work is performed through manual labour, with mechanisation accounting for less than 10pc.

Over 20 dealers import tractors and agricultural machinery.

Messey Ferguson, Landini, Class, SAME, John Deere and Case are the prominent tractor marks imported by companies such as Ries Engineering, the Motor & Engineering Company (MOENCO), Hagbes Plc, and Gedeb Engineering Plc. They are competing with a few domestic assemblers to attract farmers' interest.

Adama Agricultural Machinery Industry, a pioneer tractor assembler, will be one of the beneficiaries of the VAT exemption.

Incorporated in 1985, the company operates with an annual capacity of 1,000 tractors, assembled in its plant in Adama (Nazareth) town. It imports parts from China and Belarus and assembles tractors of varying engine capacity, from 50 to 180 horsepower (hp). A 50hp tractor sells for half a million Birr, while the 180hp model is sold for 3.1 million Br.

Adama's prices are relatively low because the tractors are assembled of parts imported six years ago, according to Eyasu Tilahun, general manager. The company has yet to make price adjustments.

“We're awaiting instructions," he said.

Re-established in 2010, the company operated as a subsidiary of the former Metals & Engineering Corporation (MetEC) until 2018. It is now under the state-owned Ethio-Engineering Group (EEG).

Eyasu believes the lifting of VAT is the right move but questions the extent of its impact.

“Machinery should cost less to make it more accessible to farmers," he said.

Unions, cooperatives and farmers are the major clients of tractor assemblers.

Yerer Farmers' Union comprises 119 cooperatives and 91,000 farmers in four weredas of Bishoftu, 60Km southeast of Addis Abeba. It owns three tractors, each costing 3.1 million Br.