IMPACT OF TAX REFORMS ON AGRICULTURAL

PRODUCTION AND EXPORTS: A CASE STUDY

OF COTTON CROP IN THE GEZIRA SCHEME

By
Sara Mohamed Kheir Ali Mehisy
B.Sc. of Agricultural Economics
University of Khartoum
November 1996

A Thesis Submitted to the University of Khartoum in

Partial Fulfillment of the Requirements for the
Degree of Master of Science (M.Sc.) in
Agricultural Economics

Supervisor: Dr. Ali Abdel Aziz Salih

DEPARTMENT OF AGRIC. ECONOMICS

FACULTY OF AGRICULTURE
UNIVERSITY OF KHARTOUM

September 2004
 To the soul of my father,
to my mother sacrifice,
to my husband,
to my brother
to my sisters.
 TABLE OF CONTENTS

Page
Acknowledgements i
Abstract ii
Arabic Abstract iii

CHAPTER ONE: INTRODUCTION 1

1.1 Tax policy 1
1.2 Performer of tax policy in the Sudan (1990-2002) 2
1.3 The problem of the study 3
1.4 Objective of the Study 5
1.5 Hypothesis 6
1.6 Organization of the study 6

CHAPTER TWO: LITERATURE REVIEW 7

2.1 Introduction 7
2.1.2 Tax Objectives 8
2.3 Contribution of tax to government revenue 10
2.4 Taxes on agricultural product 13
2.4.2 Agricultural income tax 16
2.4.3 Taxation of foreign trade 18
2.4.2.1 Export duties 18
2.4.2.2 Import duties 19
2.4.3 States and local taxes and fees 20
2.4.3.1 Gibana tax 22
2.4.3.2 Tithes (ushur) tax 22
2.4.3.3 Land tax 23
2.4.4 Zakat 23
2.5 Tax reform 24
2.5.1 Tax reform and agricultural production 24
2.5.2 Tax reform and farmers revenue 25
2.6 Conclusion 25
 Page
CHAPTER THREE: THE CONCEPTUAL FRAMEWORK
AND THE METHODOLOGY 26
3.1 The conceptual framework 26
3.2 Taxation and the demand and supply elasticities 26
3.3 The farm budget 34
3.4 Construction of the budget 34
3.4.1 The revenue 36
3.4.1.1 The farm gate price 36
3.4.2 The costs 36
3.5 Profitability indicators 37
3.6 Correlation coefficient 38

CHAPTER FOUR: TAX REFORMS AND COTTON

PRODUCTION AND EXPORT 40
4.1 Introduction 40
4.2 Data and assumptions of the analysis 40
4.3 Data analysis 40
4.4 Cotton budget analysis 41
4.4.1 The analysis of variable cost of production 41
4.4.1.1 Land preparation cost for one feddan 41
4.4.1.2 Cultural operation cost 42
4.4.1.3 Cotton picking cost 42
4.4.1.4 Material inputs cost 42
4.4.1.5 Other costs 42
4.4.1.6 The total variable cost 44
4.4.2 Analysis of crop returns 44
4.4.2.1 Cotton yield 44
4.4.2.2 The farm gate price 44
4.4.2.3 Gross returns 45
4.4.2.4 Gross marginal return before tax 45
4.5 Analysis of impacts of taxes and fees on cotton production 45
 Page
4.5.1 Market taxes 47
4.5.2 Production tax 47
4.5.3 Local and reserve fees 47
4.5.4 Zakat 48
4.5.5 Other taxes 48
4.5.6 Agricultural import tax 48
4.5.7 The total taxes and fees of cotton production 50
4.6 Impact of production tax and fees on cotton producer
and the Gezira Scheme budget 50
4.7 The correlation coefficient 55
4.8 Taxes and fees of cotton export 55
4.8.1 Custom tax 55
4.8.2 Export company fees 55
4.8.3 Sudan Cotton Company fees 57
4.8.4 Reserve storage fees 57
4.8.5 Sea Port Corporation fees 57
4.8.6 Standard and metrology organization fees 57
4.8.7 Bales preparation fees 59
4.8.8 The total tax and fees of cotton export 59
4.9 Impact of export tax and fees on the cotton export 59
4.10 Total tax and fees of cotton
production and export 60

CHAPTER FIVE: SUMMARY, CONCLUSIONS AND

RECOMMENDATIONS 63
5.1 Summary 63
5.2 Conclusions 63
5.3 Recommendations 65

REFERENCES 66

APPENDICES
 LIST OF TABLES

Table Title Page

1.1 Percentage share of direct tax and indirect tax on

total government revenue. 4

2.1 Percentage contribution of tax and non-tax returns

on government’s revenues during the period
1990-2002. 11

2.2 The percentage of different type of tax to government

revenue during the period 1996-2002. 12

2.3 Taxes on cotton crop of the Gezira scheme, (1998) 15

2.4 Real value of agricultural income tax and its

contribution on total direct tax in SD million
during the period 1991-2002. 17

2.5 Imports duties in agricultural inputs in percentage out

of CIF value, (1998). 21

3.1 Construction of crop budget. 35

3.2 Calculation of correlation coefficient. 38

4.1 Variable cost of cotton production for the Gezira

Scheme in SD per feddan during the period 1990/91
– 2002/03. 43

4.2 Average farm gate price, average yield and average

gross return of cotton production in the Gezira
Scheme for the season of 1990/91-2002/03. 46
Table Title Page

4.3 Production and marketing taxes and fees for cotton of

the Gezira Scheme level in SD 000 for the seasons
of 1990/91-2002/03. 49

4.4 Import tax for production inputs of cotton during

1990/91-2002/03 in (SD 000). 51

4.5 Impact of production tax and fees on producer

revenue during 1990/91-2002/03 in SD per kintar. 52

4.6 Impact of production and marketing taxes and fees

on the Gezira Scheme in SD 000 for the seasons of
1990/91-2002/03. 54

4.7 Calculation correlation coefficient between

government revenue and cotton output during the
period 1990-2002. 56

4.8 Exported taxes and fees on cotton in SD 000 during

the period 1990-2002. 58

4.9 Impact of taxes and fees on cotton export during the

period 1990-2002. 61

4.10 Total agricultural tax (production, marketing and

export) on cotton crop value of the Gezira Scheme
during the period 1990/91-2002/03. 62
 LIST OF FIGURES

Fig. Page
Title

1 Consumer’s and producer’s surplus excess

burden and government revenue. 28

2 Case of inelastic supply curve (producer’s tax

burden PPCO). 30

3 Case of inelastic demand curve (consumer’s tax

burden PcP*AD). 32

4 Case of perfect elastic demand curve. 33

5 Case of perfect elastic supply curve. 33

 Price S+T S

B A
P* D
Pp C

0 Q1 Q* Quantity produced

Fig. 4 Case of perfect elastic demand curve.

Price

Pc B S+T

P* C A S

0 D+T D
Q Q* Quantity produced

Fig. 5 Case of perfect elastic supply.

 ACKNOWLEDGEMENTS

I would like to express my deep thanks and gratitude to all

who helped me in accomplishing this work.
With all respect I am indebted and owed to my supervisor
Dr. Ali Abdel Aziz Salih for his guidance, valuable discussions and
encouragement. My deep gratitude to Dr. Hashim Elobeid for his
kind help. Grateful acknowledgement to Dr. Fathi Sid Ahmed
Sayed for his great efforts and patience and valuable advice
through out this study.
A lot of thanks are due to Bilghies Hassan from Dept. of
Agric, Engineering for her helping in making final touching and
typing this manuscript.
Sincere appreciation is due to the Gezira Scheme
Administrations at Barakat and Khartoum, the staff of the
Ministry of Foreign Trade, Sudan Customs, Tax Bureau,
Department of Agricultural Economics of the Ministry of
Agriculture and Forest, and to the staff of the Ministry of Finance
and National Economy.
I wish also to express my thanks to the Staff of the
University of El-Zaim El-Azhari for their assistance.
 ABSTRACT

The purpose of this study is to assess the impact of tax

reforms during 1990-2002 on the agricultural performance and
government revenue, more precisely, on the Sudan cotton
production and export, (Gezera scheme).
The study depended on secondary data, which was collected
from Gezira scheme and different department in Khartoum. Budget
analysis was used to estimate the affect of tax and fees reforms on
cotton crop.
In assessing the government revenue, the study found that the
government revenue increased by about 37% as result of the decreases
in tax rate from 57% to 31% in both farmer and scheme levels, where
the cotton out put increased by 13% during 1990-2002.
In assessing the farmer affect, the budget analysis showed the
decreases in agricultural taxes and fees from about 55% in 1990-1995
to about 27% in 1996-1999 and to about 21% in 2000-2002, despite of
the increases in tax value due to increases in tax bate.
The study found that there was an increases in the informal
taxes burden by about 55%, nullify of positive affect of official
decreased taxes.
Although taxes were reformed, cotton export yet still suffered
from taxes and fees, which ranged between 79% during the period
(1990-95) to about 35% during the period (2000-2002).
The study found that the overall tax reform had a positive affect on
government revenue and is still high in production and export.

The study draw some recommendations, the important one is to

remove all taxes and fees particularly at state level so as to encourage
the producer and exporter.
 ‫ﺨﻼﺼﺔ ﺍﻷﻁﺭﻭﺤﺔ‬

‫ﺘﻬﺩﻑ ﺍﻟﺩﺭﺍﺴﺔ ﺇﻟﻲ ﺘﻘﻴﻴﻡ ﺃﺜﺭ ﺍﻹﺼﻼﺤﺎﺕ ﺍﻟﻀﺭﻴﺒﻴﺔ ﺨﻼل ﺍﻟﻔﺘـﺭﺓ ‪2002-1990‬‬

‫ﻋﻠﻰ ﺍﻷﺩﺍﺀ ﺍﻟﺯﺭﺍﻋﻲ ﻭﺍﻹﻴﺭﺍﺩﺍﺕ ﺍﻟﺤﻜﻭﻤﻴﺔ‪ ،‬ﻭﺒﺼﻭﺭﺓ ﺃﺩﻕ ﻋﻞﻯ ﺇﻨﺘﺎﺝ ﻭﺼﺎﺩﺭ ﺍﻟﻘﻁـﻥ ﻓـﻲ‬

‫ﺍﻟﺴﻭﺩﺍﻥ )ﻤﺸﺭﻭﻉ ﺍﻟﺠﺯﻴﺭﺓ(‪.‬‬

‫ﺍﻋﺘﻤﺩﺕ ﺍﻟﺩﺭﺍﺴﺔ ﻋﻠﻰ ﺍﻟﻤﻌﻠﻭﻤﺎﺕ ﺍﻟﺜﺎﻨﻭﻴﺔ ﺍﻟﺘﻲ ﺠﻤﻌﺕ ﻤـﻥ ﻤﺸـﺭﻭﻉ ﺍﻟﺠﺯﻴـﺭﺓ‬
‫ﻭﺍﻹﺩﺍﺭﺍﺕ ﺫﺍﺕ ﺍﻟﺼﻠﺔ ﺍﻟﻤﺨﺘﻠﻔﺔ ﺒﺎﻟﺨﺭﻁﻭﻡ‪.‬‬
‫ﺍﺴﺘﺨﺩﻤﺕ ﺍﻟﺩﺭﺍﺴﺔ ﺘﺤﻠﻴل ﺍﻟﻤﻴﺯﺍﻨﻴﺔ ﻟﺘﻘﻴﻴﻡ ﺍﺜﺭ ﺍﻹﺼﻼﺤﺎﺕ ﺍﻟﻀﺭﻴﺒﻴﺔ ﻋﻠﻰ ﻤﺤﺼـﻭل‬
‫ﺍﻟﻘﻁﻥ ﺒﻤﺸﺭﻭﻉ ﺍﻟﺠﺯﻴﺭﺓ‪.‬‬
‫ﻓﻴﻤﺎ ﻴﺘﻌﻠﻕ ﺒﺎﻹﻴﺭﺍﺩﺍﺕ ﺍﻟﺤﻜﻭﻤﻴﺔ ﻓﻘﺩ ﻭﺠﺩﺕ ﺍﻟﺩﺭﺍﺴﺔ ﺃﻥ ﺍﻹﻴﺭﺍﺩﺍﺕ ﺍﻟﺤﻜﻭﻤﻴـﺔ ﻗـﺩ‬
‫ﺍﺯﺩﺍﺩﺕ ﺒﻨﺴﺒﺔ ‪ %37‬ﻨﺘﻴﺠﺔ ﻟﺘﺨﻔﻴﺽ ﻤﻌﺩل ﺍﻟﻀﺭﻴﺒﺔ ﺍﻟﺯﺭﺍﻋﻴﺔ ﻤﻥ ‪ %57‬ﺇﻟﻰ ‪ %31‬ﻋﻨـﺩ‬
‫ﻤﺴﺘﻭﻯ ﺍﻟﻤﺯﺍﺭﻉ ﻭﺍﻟﻤﺸﺭﻭﻉ ﻭﺃﺩﺕ ﺇﻟﻰ ﺍﺭﺘﻔﺎﻉ ﻤﺴﺘﻭﻯ ﺇﻨﺘﺎﺝ ﺍﻟﻘﻁﻥ ﺒﻨﺴـﺒﺔ ‪ %13‬ﺨـﻼل‬
‫ﻓﺘﺭﺓ ﺍﻟﺩﺭﺍﺴﺔ‪.‬‬
‫ﻓﻴﻤﺎ ﻴﺘﻌﻠﻕ ﺒﺎﻷﺜﺭ ﻋﻠﻰ ﺍﻟﻤﺯﺍﺭﻉ ﻓﻘﺩ ﺃﻭﻀﺢ ﺘﺤﻠﻴل ﺍﻟﻤﻴﺯﺍﻨﻴﺔ ﺃﻥ ﺍﻟﻀﺭﺍﺌﺏ ﻭﺍﻟﺭﺴﻭﻡ‬
‫ﺍﻟﺯﺭﺍﻋﻴﺔ ﻤﻥ ﺘﻜﻠﻔﺔ ﺍﻹﻨﺘـﺎﺝ ﻗـﺩ ﺍﻨﺨﻔـﺽ ‪ %55‬ﻓـﻰ‪ 1995-1990‬ﺇﻟـﻰ ‪ %27‬ﻓـﻲ‬
‫‪ 1999-1996‬ﺜﻡ ﺍﻟﻰ‪ %21‬ﻓﻲ ‪ 2002-2000‬ﻋﻠﻰ ﺍﻟﺭﻏﻡ ﻤﻥ ﺍﺯﺩﻴﺎﺩ ﻗﻴﻤﺔ ﻫﺫﻩ ﺍﻟﻀـﺭﻴﺒﺔ‬
‫ﻨﺘﻴﺠﺔ ﻟﻠﺘﻭﺴﻊ ﻓﻲ ﺍﻟﻤﻭﺍﻋﻴﻥ ﺍﻟﻀﺭﻴﺒﻴﺔ‪.‬‬
‫ﻭﺠﺩﺕ ﺍﻟﺩﺭﺍﺴﺔ ﺃﻥ ﻫﻨﺎﻟﻙ ﺯﻴﺎﺩﺓ ﻓﻲ ﺘﻜﺎﻟﻴﻑ ﺍﻟﻀﺭﺍﺌﺏ ﻏﻴﺭ ﺍﻟﺭﺴﻤﻴﺔ‪ ،‬ﻓﻘـﺩ ﺍﺯﺩﺍﺩﺕ‬
‫ﻫﺫﻩ ﺍﻟﻀﺭﺍﺌﺏ ﺒﻨﺴﺒﺔ‪ %55‬ﻭﻴﺘﻭﻗﻊ ﺍﻥ ﺘﻘﻠل ﻤﻥ ﺍﻷﺜﺭ ﺍﻹﻴﺠﺎﺒﻲ ﻟﺘﺨﻔﻴﺽ ﺍﻟﻀﺭﺍﺌﺏ ﺍﻟﺭﺴﻤﻴﺔ‪.‬‬
‫ﺃﺸﺎﺭﺕ ﻨﺘﺎﺌﺞ ﺍﻟﺘﺠﺭﺒﺔ ﺍﻥ ﺼﺎﺩﺭﺍﺕ ﺍﻟﻘﻁﻥ ﻤﺎﺯﺍﻟﺕ ﺘﻌﺎﻨﻲ ﻤﻥ ﺍﻟﻀﺭﺍﺌﺏ ﻭﺍﻟﺭﺴـﻭﻡ‬

‫ﺒﺭﻏﻡ ﺍﻨﺨﻔﺎﻀﻬﺎ ﻤﻥ ‪ %79‬ﻓﻲ ‪ 1995-1990‬ﺇﻟﻰ ‪ %35‬ﻓﻲ ‪.2002-2000‬‬

‫ﺘﻭﺼﻠﺕ ﺍﻟﺩﺭﺍﺴﺔ ﺇﻟﻰ ﺍﻥ ﺇﺠﻤﺎﻟﻲ ﺍﻟﻀﺭﺍﺌﺏ ﻟﻪ ﺒﻌﺽ ﺍﻷﺜﺭ ﺍﻹﻴﺠﺎﺒﻲ ﻋﻠـﻰ ﺍﻟﻌﺎﺌـﺩ‬
‫ﺍﻟﺤﻜﻭﻤﻲ ﺒﺭﻏﻡ ﺍﻨﺨﻔﺎﻀﻬﺎ ﻻﺯﺍﻟﺕ ﻤﺭﺘﻔﻌﺔ‪.‬‬
‫ﺨﻠﺼﺕ ﺍﻟﺩﺭﺍﺴﺔ ﺇﻟﻰ ﻋﺩﺩ ﻤﻥ ﺍﻟﺘﻭﺼﻴﺎﺕ ﻭﺍﻟﺘﻲ ﻤﻥ ﺃﻫﻤﻬﺎ ﺇﺯﺍﻟﺔ ﺍﻟﻀﺭﺍﺌﺏ ﻭﺍﻟﺭﺴﻭﻡ‬
‫ﺨﺎﺼﺔ ﻋﻠﻰ ﺍﻟﻤﺴﺘﻭﻯ ﺍﻟﻭﻻﺌﻲ ﻟﺘﺸﺠﻴﻊ ﺍﻟﻤﺯﺍﺭﻉ ﻭﺍﻟﺼﺎﺩﺭ‪.‬‬
 CHAPTER ONE
INTRODUCTION

The agricultural sector exerts strong influence on the whole

economy, being the main source of national income and foreign
exchange earnings. In addition, the agricultural sector is the main
source of food for both the human and animal consumption. It also
supplies local industries with raw materials.
In general, agricultural sector is affected by the agricultural
policy that has a score of objectives, derived mainly from certain
political objectives. These objectives include, among others, the
maintenance of maximum engagement in agriculture, the maintenance
of a certain degree of self- sufficiency in food and the maintenance of
farmers income levels. They also include improvement of agricultural
production and marketing policies that deal with changes in the
distribution chain between the farmer and consumer, in addition to
that price policies, which affect farmer’s gate prices and at other
stages in the distribution chain of prices.

1.1 Tax policy

It’s a part of price policy, which has a significant effect on the
performance of agricultural sector in developing countries.
Taxes are payments made voluntarily or involuntarily by both
producers and consumers to government for increasing budget
revenues, improve equity through income distribution among the rich
and the poor. Taxes in form of import tariff help also in protecting
infant industries and import subsidies such as wheat crop. Taxes also
act as a tool for reallocation of resources among different sectors and
it can act as incentives to certain favored activities and disincentive to
disfavored activities (Elsaid, 2000)
In general, the agricultural sector in developing countries is
heavily taxed, while in developed countries it receives substantial
price subsides. Both prices, however, are costly in term of society.
The government of Sudan intervened directly through farm prices
support or consumer price, export and tax control, import tariff and/or
subsidies and input price subsidies, or indirectly, through trade
exchange rate and macro-economic policies. Government, often setup
marketing boards. The impact of these boards on production and
incentives can be positive if sales to them are voluntary and their role
is to prevent farm prices from going below a pre-determined level. But
it is difficult to make such generalizations on efficiency. Lack of
integration between surplus and deficit farming producing areas,
resulting from inadequate infrastructure, can lead to weakness in the
domestic production system (Emam, 1994).

1.2 Performance of tax policy in the Sudan (1990-2002)

The tax system in the Sudan displays many of the features
common to undeveloped countries. It is divided into direct and
indirect taxes. Direct taxes are those taxes paid by the nation directly
according to fixed rates. It included income tax, business profit tax
and mark (stamp) tax. Indirect taxes, which are levied on expenditure
on good and services, included import tax, export tax, production fees,
consumption tax and defense tax.
There are additional fees and local tax imposed by local
authorities and governments such as usher, gibtana, date tax and land
taxes. These fees influenced the producer revenue as a result of their
high rate.
In the Sudan indirect taxes are widely used than direct taxes as
in many developing countries. So the first feature of Sudanese tax
structure is its over whelming reliance on indirect taxes, notably those
on foreign trade. The second feature of tax structure is the small share
of direct taxes in total government return reflecting the small
importance of the corporate sector tax revenue and also reflects the
limited role of the personal income tax (Table 1.1). Finally, non tax
revenue formed nearly 21% of total government revenue during
1990-1999, but it rose up to 50% in 2002 as a result of tax reforms.

1.3 The problem of the study

The agricultural sector is the backbone of the Sudan economy.
It contributed about 46% on GDP on average during the 1990s and
provided employment for more than 53% of labour force, (Ministry of
Finance and National Economy, 2000). This sector faced a lot of
problems during 1990s, when formal and informal taxes have been
increased to support the government budget.
Taxes in agricultural revenue inevitably influence the behaviour
of farmers, as they affect decision making of farmers and allocate their
efforts and other resource away from agriculture. One common form
 Table 1.1 Percentage share of Direct tax and Indirect tax on
total Government revenue.

Year Direct tax Indirect tax Total tax

1990-1994 23.9% 76.1% 100

1994-1995 38.7% 61.3% 100

2002 19% 81% 100

Source: Ministry of Finance and National Economy (2002).

 of tax influence occurs when the government taxed agriculture output
directly or by setting up state road fees. So, agriculture in Sudan
became less attractive to farmers and investors.
In countries, where most of the population are engaged in
agriculture, where export earning depend on agricultural commodities,
there is less desire to tax agriculture. So, the challenge is to explore
a sort of tax policy that enables the government to increase its revenue
without reducing the incentive for farmer and investors on agriculture.
The government of Sudan began to achieve those aims in steps.
Since 1999 the government, to cope with globalization, reformed
agricultural taxes by eliminating non-custom tariffs and increases the
existing custom tariff level. It reduced tariffs, imposed the value-
added tax (VAT) levied at about 10% of processed commodities price
in 2000. Also, the government continued to extend tax umbrella by
increasing the number of tax bates in order to distribute tax burden
among different target groups and to avoid tax evasion and improve
tax administration. The questions are: have these policies really been
applied? Is adopted tax reforms suitable for agriculture? Have the
expansion on tax bates led to reduction of tax burden on farmers and
increased farmer’s incentive and at the same time increased the
government revenue?

1.4 Objectives of the Study

The main objective of this study is to assess the impact of the
new tax policy reform on improving the performance of the
agricultural sector in Sudan, taking cotton crop in Gezira scheme as
a case study.

Specifically the study aims to:

1- Evaluate the impact of reducing/removing agricultural
tax on increasing farmers crop output and income.
2- Evaluate the impact of tax policy reforms on agricultural
export revenue.
3- Evaluate the impact of tax policy reforms of expanding
the bate on government revenues.

1.5 Hypothesis
The study hypotheses
1- Reduction/removal of taxes on agriculture increases
farmers’ income.
2- Reduction/removal of taxes on agriculture improves
export and revenue of agricultural commodities.
3- Expansion of tax bates increase government revenue.

1.6 Organization of the study

The study is composed of five chapters: Chapter one gives the
introduction of the study, the objectives, hypotheses and organization
of the study. Chapter two deals with the literature review. Chapter
three explains the methodology, while chapter four deals with the
analysis and results of the study. Finally, chapter five gives the
summary, conclusion and recommendations.
 CHAPTER TWO
LITERATURE REVIEW

2.1 Introduction
Countries need sources of revenue to meet their public
expenditure and to offer public services for the nation such as security,
health and education .The sources of revenue depend on: the type of
Government that is largely involved in improving services to raise the
social standard of living, education structure, international economic
orientation, the level of development and the relation of the country
with the external world (Amara, 2000).
In the Sudan, the main sources of revenue are: Taxation
revenue, Geziera Scheme and other public schemes and corporation
partecepation on the government earnings, Bank’s profits,
Government land fees, fees and taxes on services and other sources.
Taxation is apart of the fiscal policy, and is a financial tool for
economic and social development. Taxation is a compulsory payment
imposed by the Government on the nation to obtain revenue to cover
the public expenditure on social services (Suliman, 1970).
The rate of taxation in the economy of the developed countries
accounts to about 45% of the public revenue. This indicates that
countries depend on taxes as a tool to achieve equity in income
distribution and to achieve stability in the whole economy. Also, taxes
are raised to absorb purchasing power during inflation, reduced to
increase purchasing power during recession.
In underdeveloped countries there are opportunities to achieve
economic stability through investment in physical infrastructure. The
role of taxes in underdeveloped counties is to assist the government by
money needed for development and to affect the socio-economic side
and the welfare in these countries (Mahmoud, 1989).
Since taxation is “a necessary evil” as Kaldor has rightly stated,
it is important to have a good taxing system. A good taxing system
depends on certain rational criterion in line with the basic goals of the
economy.
The primary goals that have acquired general acceptance are
those of efficient resource allocation, full employment with price
stability, a satisfactory income distribution and a high and stable rate
of economic growth.
 Traditionally, the role of taxes have been assessed by
economists, since Adam Smith’s, based on four general criteria to
which other special criteria may be added. The four traditional
desirable attributes of a tax system are: (i) allocation efficiency
(ii) equity, (iii) administrative feasibility and (iv) revenue productivity
(Nemiri, 1974).

2.1.2 Tax Objectives

By the beginning of twentieth century taxes had only one aim,
that is generating financial revenue .Recently, taxes added social and
economical aims to the financial objectives (Elkateep, 1997).

Financial Objectives
Tax represents the main assured source of revenue for the
government to maintain the financial equilibrium of its public budget.
In the developed countries the rate of direct tax revenue constitutes
a high percentage of the gross domestic product. But in the developing
countries the share of direct tax is very low because it depends
basically on indirect tax.

Social Objectives
There are multiple social objectives for taxes represented in
redistribution of income and wealth, introduction of services,
achievement of equity through redistribution of the tax burden among
the nation. Tax also helps to avoid many bad social habits, such as
smoking cigarettes, by imposing high taxes on its sales or on its
industry.

Economical Objectives
Recently, the economic objective of using taxes is to impose
taxes on consumption, production saving and investment. So the
government uses the tax as a tool to provide incentives for producers
to encourage production of essential goods and services and to provide
disincentives to consumer to deter them from spending on unwanted
goods such as luxuries.
Taxes also protect infant industry in developing countries, it is
increased also to crowd out inflation effect and is reduced during
recession (Elkateep, 1997).

2.3 Contribution of tax to Government revenue

 Taxes contributed about 79% of the total government revenue
in Sudan. Table 2.1 shows the percentage share of direct and indirect
tax levies on public revenue.
During 1990s, the government derived nearly half of its revenue
from indirect taxes. For instance, indirect tax in1991\92 accounted to
about 61% of total government revenue. It constituted almost 50% of
total government revenue during the period 1991-1999,and then
dropped down to 37% in 2000 and increased to 40% in 2002. By that
time non-tax revenue bndge the gab.
The importance of foreign trade in the Sudanese economy was
reflected in the high share of import and export duties contribution to
the public revenue. The Tariff taxes contributed about 40% of total
government revenue in 1996, which increased to 41% in 1997.
Agricultural exports represented the most important source of Sudan
foreign earnings. So, the tariff tax revenue comes mainly from both
agricultural inputs and export (Table 2.2). It is observed that the tariff
tax has been the highest, while that of development tax has been the
lowest during the period 1996-2002. Morover, the share of business
profit tax was about 19% in 1996,and dropped to 5% in 2002. The
agricultural tax (direct and indirect tax) has been about 41%, then
dropped to 21% in 2002.
 Table 2.1 Percentage share of tax and non-tax returns on
governments revenues during the period 1990-2002.

Years Non-taxes
Direct tax Indirect tax Total taxes
return
1990/91 16 51 67 33
1991/92 16 61 77 23
1992/93 28 50 78 22
1993/94 32 52 84 16
1994/95 34 54 88 12
1995 28 54 82 18
1996 29 58 87 13
1997 20 56 76 24
1998 19.6 53.4 73 27
1999 17.3 56.4 73.7 26.
2000 11.5 37 48.5 51.5
2001 11.2 40.3 51.5 48.5
2002 8.7 36.6 45.3 54.7

Source: Ministry of Finance and National Economy (2002).

Table 2.2 The percentage of different type of tax contribution to
government revenue during the period 1996-2002.

Type of tax 1996 1997 1998 1999 2000 2001 2002

Total taxes 87 76 73 73.7 48.5 51.5 45.3
Direct taxes 29 20 19.6 17.3 11.5 11.2 8.7
Business profit tax 19 6 5 10.5 6 6 5.1
Personal income tax 2 2 3 1 1 1.3 1.1
Stamp duties 1 1 1 1 1 1.5 1.4
Agricultural income tax 0.8 0.6 0.5 0.4 0.2 - -
Turnover tax 1 0.5 0.6 1 0.6 0.6 -
Development tax 0.4 0.5 0.4 0.4 0.5 0.4 0.1
* Other tax 4.8 9.5 9.1 3 2.2 1.4 1
Indirect taxes 58 56 53.4 56.4 37 40.3 36.6
Export and import taxes 40 41.4 38.4 39.8 22 21.1 20.6
Production taxes 18 14.6 15 16.6 10 8.8 7.3
**Value added taxes - - - - 5 10.4 8.7

* Other tax include: capital profits, building tax, added tax and cars license.

** Introduced in 1999, applied in 2000.

Source: Ministry of Finance and National Economy (2002).

2.4 Taxes on agricultural product
Agriculture is an important source of revenue in the Sudan
where, both agricultural products and inputs were subject to taxation
at various levels. Taxes are levied on the farm level, domestic and
foreign market levels. Both agricultural products and inputs were
subjected to taxation with various levels.
Taxing agriculture is likely to be an essential component of
government policy for a variety of reasons. First, as a source of
revenue since agriculture has a wide tax base in many developing
countries. Second, it is argued that agriculture needs to be taxed, since
it is inherently unprofitable in the long-run, to provide an industrial
base for sustaining development. Finally, it is often thought that
taxation contributes to welfare by securing cheap food for both rural
and urban consumers (Nemiri, 1974).
Since the federal system has been introduced, the government
of Sudan decided to offer the councils of the States and Localities the
authority of levying taxes and fees on agricultural product to finance
their local activities. Such additional tax burden resulted into negative
effects on the agricultural sector, making it less attractive to farmers
and investors (Elhori, 2000).
The producers of exported crops in all part of Sudan suffered
from high rates of several taxes such as ushur and zakat leading to
increases in cost of crop production. So, most relevant obstacles to
crop production and marketing include the relatively high rate of
national taxes and local duties (Yasseen, 2001).
Agricultural crops are taxed at high rate of sale value. A further
tax is charged for market services, these taxes constitute a large
proportion of the total cost of production. The tax is usually paid by
the buyer based on the crop price. The farmers dose not incur any
expenses on taxes, but the fact remains that the price paid for the
produce is reduced by the amount paid to local institution in form of
taxes (Elkhidir, 1988).
Production taxes on cotton accounted to more than 15% of crop
price in 1990s. This was in addition to other federal, state and local
fees. This high cotton tax burden added to the cost of production and
reduced the revenue of producers ultimately resulting in reduction in
the quantity of cotton export, weakening its competitive capacity in
world market, and reduction in the foreign currency returns of the
main exported crop (Ministry of Agriculture and Forest, 1999).
The changes in tax levies started basically by reducing the ushur
and gibana taxes on agricultural commodities from 16% to 8% in
1993/94 at the state level. Another major change took place by the
turn of the 1990 decade by reducing the taxes on imported agricultural
inputs and machinery from 40% to 6%, and export taxes on
agricultural export to 10% for Cotton and gum Arabic, 5% for other
crops and Zero% for fruits and vegetables and livestock exports,
(Ministry of Agriculture and Forest). Though several tax reforms were
announced during the 1990 decade, the fact of is that these
announcements were hardly adhered to. Table 2.3 show that taxes
imposed on cotton of Gezira Scheme could went up to 36% of sale
price.
Table 2.3 Taxes on cotton crop of the Gezira scheme, 1998

Items Type of tax % of sale price

Export tax 8

Exported company fees 1

Sudan cotton company fees 1

Federal tax Reserve storage fees 2

Sea port company fees 0.5

Standard and metrology fees 0.5

Sub-total 13

Market tax 8

Income tax 1

State taxes Discount and added taxes 1

Zakat 5

Sub-total 15

Local government fees 4

Medani, and Managel support, 4

Other fees
wounded tax martyr …etc

Sub-total 8

Total taxes and fees 36

Source: Ministry of Agriculture – Dept. of Agricultural Economics

and Statistics Sudan Cotton Company
 However, in fiscal of 2000, a major tax reform decision was
taken by the Ministry of Finance to remove all agricultural taxes at
state and federal levels. Nevertheless, the implementation of this
policy seemed to be partly honored.

2.4.2 Agricultural income tax

Direct agricultural taxes such as income tax were not levied on
agricultural sector for a long time. But in1991\92, the government
decided to include agricultural sector in its direct tax revenue to
achieve the concept of tax equity and to increase the government
revenue, specially after the appearance of many agricultural
companies (Sayed, 1992).
From Table 2.4, it was observed that the agricultural income tax
rate dropped from 6% in 1991\92 to about 1% in 1996 of total direct
tax and rose further to about 3% and dropped again to 2% in year
2000. These changes were due to policy reforms, which needed time
for adjustment. The 2.7%and 0.2% of tax rate in 2001, 2002 were
basically to cover delays in tax collection. Value wise, the value of
taxes collected in line with these drops in tax rates were as follows: -
A sharp increase in tax value from SD 33 million in 1991\92 to
SD 2,111.3 million in 1996, could be due to increases in the base of
tax collection and to inflation. Real value estimated using consumer
price index (CPI), showed that the real increase was from SD 110
thousand to SD 187.4 thousand (Table 2.4).
 Table 2.4 Real value of agricultural income tax and its contribution
total direct tax in SD million during the period 1991-
2002.

% of Agric.
Agric. Total direct Real value of
Years income tax of CPI
Income tax tax income tax
total direct tax

1991/92 33.570 548 6 304.9 0.110

1992/93 95.390 2226 4 660.9 0.144

1993/94 112.670 3667 3 1310.9 0.086

1994/95 216.910 7496 2.9 2843.1 0.076

1995 115.990 4809 2.4 4787.5 0.024

1996 2,111.270 20015 1 11263.5 0.187

1997 748.757 21680 3 16179.1 0.046

1998 859.105 31271 2.7 18891.3 0.045

1999 899.053 36068 2 22037.5 0.041

2000 770.372 38065 2 23787.4 0.032

2001 301.315 11082 2.7 24985.8 0.012

2002 13.677 8553 0.2 27633.0 0.0005

6

Source: Ministry of Finance and National Economy (2002),.

Taxes Bureau (2002).
2.4.3 Taxation of foreign trade
Export duties and import duties together constituted over 40%
of the total tax revenue in 1999 (Table 2.2). So, foreign trade taxes
were considered as a burden especially on agricultural sector. These
trade taxes were levied on agricultural inputs (i.e. fertilizer, pesticide
and machinery) and exports such as cotton, gum Arabic, and others
(Ali, 2000).
Foreign sector is very suitable for taxation, not only because it
is growing rapidly, but because this tax facilitates easy access to any
taxpayers more than through income taxes.

2.4.2.1 Export duties

Export tax is a certain amount of money estimated as a rate out
of Free on Boot (FOB) value of exported commodities. In1990s, this
rate in essence amounted to about 10% of FOB price of cotton lint
destined for exportation.
Export duties, taxes and commodity levies are widely used in
developing countries, it can benefit a country if it is a larger exporter,
with influence over market price. It is used as a tool to stabilize the
producers’ income against changes in prices and to encourage the
domestic industries indirectly as they prevent of exports of raw
material and use them for domestic purposes.
Agriculture is usually adversely affected by the export taxes
because resources move out of the sector and price incentives to
producers are lessened (Emam, 1994). Export taxes account for a
much smaller share of government revenue compared to those of
import duties. The reason for this is that the rate of export duties,
which are levied on agricultural export, are generally low. The low
rate of export duties are advisable since high export duties would
weaken the competitive position of local cotton and other exported
crops production and encourage use of substitutes such as synthetic
fiber. High export taxes also discriminate against production of export
crops in favor of production of crop for domestic consumption
(Nemiry, 1970)
In spite of their limitation, export taxes form an attractive
source of revenue for a country whose economy is based heavily on
foreign trade as in case of Sudan.

2.4.2.2 Import duties

Prior to WTO, countries protect their domestic productive
enterprises by imposing high rate of import duties for support of
domestic crop and animal production and in order to cover part of
their budget deficits. On the other hand, this taxes affect the prices of
inputs thereby increasing the cost of production and subsequently
reducing the farm revenue (Emam, 1994).
Import duties contributed about 32.5% of indirect tax in 1999,
collected at port points on CIF value (cost, insurance and freight).
Beside providing revenue, import duties protected infant industries in
the Sudan, since the industrial sector suffered from low capacity out
put due to shortage in power, use of traditional technology, poor
capital investment and inadequate supply of raw material (Hammed,
2000).
Import subsidies were used in many least developing countries
to lower the cost of modern inputs. The purpose of such subsidies was
to encourage the use of imported production technologies by farmers,
and hence expand production. In Sudan since 1992, new macro
economic policy reform announced the removal of subsidy officially,
and by floating the foreign exchange rate, the associated implicit
subsidy disappeared (Hammed, 2001).
Import duties are a classical and effective means of rising
domestic price of imports without blocking international price
influence. Variable levies provide a degree of protection to domestic
price against world fluctuations. Developing countries may use them
to insulate domestic price from the effects of imports subsidized
at their source, but such a measure carries the risk of introducing
long-term price distortions (Emam, 1994).
The increases in customs duties since 1993 (from 4% to 13%)
imposed on the imported inputs have formed an additional burden for
the farmer. Table 2.5 indicated the total duties imposed on imported
input in 1998. This table showed that the tax rate amounted to about
17% from CIF value of machinery, fertilizer and pesticide. Tax rate of
Hessian sack represented the highest one, the reason for this is that
Hessian sack considered as a part of clothes material.

2.4.3 States and local taxes and fees

This type of taxes played an important role in financing states
and countries. It reduces the central subsidies to the state. These taxes
include ushur, gibana, date tax, land tax and other fees. The rate of
this tax varied between 5% and 15%, and differed from one state to
 Table 2.5 Imports duties on agricultural inputs in percentage out of
CIF value (1998).

Hessian
Items Machinery Fertilizer Pesticide Seeds
sacks

Import duties 5 5 5 5 75

Business profit tax 5 5 5 5 5

Consumption tax - 2 2 2 2

Port corporation duty 2 2 2 2 2

Standard and meteorology 0.5 0.5 0.5 0.5 0.5

tax

Other taxes 4 2 2 - 4

Total % out of CIF value 16.5 16.5 16.5 14.5 88.5

Source: Ministry of Agriculture, Agricultural Economic

Department (1999).
another. The return of state tax and fees was divided between state
60% and countries 40%. In addition, other fees are collected from
the same tax bate, which added other burden to the producer
and consumer as well. These included zakat, wound stamp,
farmers union aid, Rahad and Kinana support, Martyr aid …etc
(Ministry of Agriculture and Forest, 2000).

2.4.3.1 Gibana tax

It is a type of market tax imposed on all crops allocated in the
irrigated and rain fed sector. In 1997/1998, the rate of gibana tax was
reduced from 10% to 8% of the market price. In 2001, the
government decided to exempt agriculture from all type of taxes
including the gibana tax (Elsaid, 2001).

2.4.3.2 Tithes (ushur) tax

Since the beginning of Islam, tithes tax were taken from
commercial goods. One tenth of good value was taken from non
Moslem people, while four tenth were taken out from Moslem people
(Elgumal, 1980).
Ushur tax is an important tax collected and granted by the
government to the state government and local authorities. This tax
plays the main role in financing rural councils, where the rainfed exist.
According to the low of ushur tax of 1924, this tax was imposed
on rain lands and flooded lands with levies differing from one council
to another. The tax rate ranged from a minimum of 6% to a maximum
rate of about 15% in 1965, determined by the locality agreed upon
with the Ministry of the state. By the end of 1990s, the rate of this tax
was reduced to 2%. Ushur tax depended not only on the tax rate but
also on the tax bate and the price of the crop (Elsaid, 2001).
 The main problem of this tax is the instability of crop yield,
basically due to the nature of agriculture product under rains. This in
turn affects crop price, the value of total production and the farmers
income (Elhori, 2000).

2.4.3.3 Land tax

This tax is imposed according to the law of land and date tree of
1925. It is concerned with irrigated land. To achieve equity, it is
divided into three divisions: (i) tax for land irrigated by sagia and
shadoof, (ii) tax for land irrigated with pump, (iii) tax for major
agricultural schemes irrigated with pumps.
It played an important role in the local councils’ budgets. It is
based according to the area of land and not to the value of product.
The rate of this tax is collected from the total product value and is not
concerned about the production costs. Accordingly this land tax does
not encourage farmers to increase their production (Elsaid, 1999).
However, recent tax policy reforms recommended that land tax
be collected from the net revenue of product since this net value
provides suitable measure for paying (Ministry of Agriculture and
Forest, 1999).

2.4.4 Zakat
It is a religious levy collected at 5% of crop gross output in case
of irrigated sector and as 10% in case of rain fed sector. The
comparatively law levy rate of the irrigated sector was stipulated to
cater for the high cost of irrigation used in that sector. The higher rate
of 10% was because less manufactured inputs and agricultural
implement usage in the rain fed sector (Soliman, 1970).
2.5 Tax reform
The aims of the tax reform in the Sudan are to: accelerate
regional and international integration of the Sudan economy, follow
the globalization within the concept of world trade organization
(WTO), distribute the tax burden, simplify the tax system through
exempted multiple taxes and fees and to increase the revenue yield of
the government without need for imposing new taxes (Ministry of
Finance and National Economy, 2000).

2.5.1 Tax reform and agricultural production

In the Sudan, tax reform started by reducing the usher and
Gibana tax from10% to 8%. Then, in 1996 agricultural income tax
was reduced from 5% to 2%. Also the Ministry of Finance and
National Economy simplified the tariff fees by reducing the import
duties (Ministry of Agriculture and Forest, 1999).
The exported tax rate reformed from 10% to 8% for cotton crop.
A new type of tax the value added tax (VAT) was introduced to
simplify the tax system already being characterized by multiple tax,
and to encourage export and increase the government revenue
(Ministry of Agriculture, 1999).
VAT is levied on petrol and production inputs, thus affecting
the farm revenue through rising the cost of production. Petrol also is
essential in transportation of the agricultural products and hence VAT
will add an additional negative effect on agricultural profit. In case of
cotton production this VAT may affect the cotton transport from the
farm to the cotton ginning and then to the market or to the port for
export.
 In 1999, the government continued tax reform. It
accommodated several other associated policies such as extending the
tax umbrella and improving the tax administration.
By the end of 1999, the Ministry of Finance and National
Economy enacted a low to remove all the agricultural export taxes and
announced a list of goods with partial exemption. Many agricultural
inputs, such as seeds, machinery are exempted from import tax and
from VAT (Ministry of Finance and National Economy, 2000).
The agricultural production was also exempted from income
tax. However, there are other types of local taxes that are still imposed
since the states do not have enough sources of revenue. That local tax
and fees included: services fees, farm union support, martyr support,
technical support and zakat (Elsaid, 2001).

2.5.2 Tax reform and farmers revenue

The main aim of tax reform was to encourage farmers decision
making and increase their revenue. This target includes several
components: encouragement of growth in the agricultural, avoidance
of negative impacts on the cost of production and on the net revenue.
There are reasons to doubt that tax reform had provided farmer
revenue. This is because local and other taxes on farmer product
mentioned above still exist and would act as an obstruction to the
cotton production and farmers returns.

2.6 Conclusion
The Government in its endeavor to strike a balance between
increasing its budget finances revenue and reducing the tax burden on
agricultural goods and enterprises adopted several tax reforms that did
not fulfill its opted objectives.
 CHAPTER THREE
THE CONCEPTUAL FRAMEWORK
AND THE METHODOLOGY

3.1 The conceptual framework

One basic condition to achieve product efficiency is to provide
suitable economic condition for production process so as to have
profitable product. This can be obtained by removing the constraints
that face the production process and affect the farmer behavior
towards producing and exporting of profitable crops.
These constraints include high cost of production and also high
taxes that emerge from government intervention in agricultural sector.
To know whether the tax policy was positive or negative, the
budget analysis can be used to estimate the affect of tax and fees
reform on crop production returns, farmer income and export revenue
(AOAD, 1999)

3.2 Taxation and the demand and supply elasticity

The following analysis is conducted with the framework of the:
(i) Marshallian consumers and producers surplus, (ii) Gonidial
measurement of utility and (iii) partial equilibrium framework.
Taxes are paid out of economic surplus. Consumers and
producers surplus is a measure of gain realized by consumers or the
producers as a result of trade transactions.
Consumer’s surplus is the difference between the total amount
of money the consumer is willing to pay for a product and what he
actually pays. It is a measure of how better off or worse off the
consumer is as a result of trade (Nemiri, 1974).
The producer’s surplus is the difference between his total
revenue and his total cost and likewise an indicator of the producer
gain and welfare from the trade.
According to (Nemiri, 1974), in Fig. 1, price is shown on the
vertical axis and the quantity of product Q on the horizontal axis.
Point A is the initial equilibrium point where supply and demand
intersects.
Consumer’s surplus before tax is shown by the triangle AGP
and produce’s surplus by triangle AGO. It is now possible to explain
the tax burden using the same diagram (Fig. 1).
Now suppose specific tax (BC) has been imposed on Q1. The
imposition of the tax can be shown by raising the supply curves, S, to
the new, after tax supply curve, S + T. The selling price of the product
is increased by the distance from OG to OF. This leads to a reduction
of demand, which leads in turn to the reduction in production as
shown by upward shift of the supply curve to the left. Accordingly the
market equilibrium will be reduced from Q1 to Q2, and the equilibrium
price for the production will be F and for consumer will be E.
In this particular case, the tax burden is partly shifted to the
buyer and partly absorbed by the seller.
 Price

S+T

F B

G H A

E C

0 Q2 Q1 Quantity produced

Fig. 1 Consumer’s and producer’s surplus excess burden and

government revenue.
The rectangle BCEF indicates that the value of tax revenue collected
by the government and the triangle ABC is the loss of consumer’s and
produce’s surplus due to government tax receipts.
Assuming supply and demand curves tax burden is measured by
the area of triangle ABC. This area is equal to 1/2 T.dQ. where T is the
tax (Bc) and dQ is the reduction in the quantity demanded of the
product, Q, as result of the rise in the price of Q. The area of the
triangle ABC can be subdivided into the triangle ABH, which
measures the loss in consumer’s surplus (the tax burden on the
consumer) and the triangle ACH, which shows producer’s loss of
surplus (the tax burden on the producer).To illustrate the effect of
demand and supply elasticity, Let’s consider the following four
extreme cases in local and external market:-

Local market
Case (1)
Is when the supply curve is inelastic (Fig. 2). Here most of the
tax is passed to the seller (producer) and there is small burden on the
buyer.
Suppose a specific tax (BC) has been imposed on Q, the
imposition of the tax can be shown by the raising the supply curve to
the new one, ST.
The price of the producer is reduced in the new equilibrium
point from P* to Pp. This leads to the reduction of production from Q*
to Q1 as shown by the shift of the supply curve to the left.
Price S+T
S

B
pc

p* C A

Pp O

0 Q1 Q* Quantity produced

Fig. 2 Case of inelastic supply curved (producer’s tax

burden PPCO).
Case (2)
Is when the demand curve is inelastic (Fig. 3). Here most of the
tax burden is shifted to the buyer (consumer).
When the demand curve becomes inelastic most of the tax
burden is shifted to the buyer and the consumer price will rise to Pc.
The price of producer is reduced and his tax burden is smaller
compared to that of the consumer. This can be shown by the left shift
of the supply curve.

External market
Case (3) (export situation)
Is when the export demand curve is perfectly elastic (Fig. 4). In
the case the tax is fully borne by the seller, as there is no way for him
to shift the tax. The extent of excess burden or the loss of producer’s
surplus is shown by the triangle ABC.

Case 4 (import situation)

Is that of a perfectly elastic supply curve (Fig. 5). When the
supply curve becomes horizontal, the entire tax is shifted to the buyer
and the market price will rise by the full amount of tax. The tax
burden is imposed on the buyer in the form of a loss in economic
surplus, which is equal to the area of the triangle ABC.
In practice one should expect the excess burden of taxation to
be shared between the buyer and the seller as indicated by Fig. 1.
Hence, the size of tax burden depends upon the elasticity of demand
and supply curve.
Price S+T
S

B
pc

p* C A

Pp D

0 Q1 Q* Quantity produced

Fig. 3 Case of inelastic demand curved (consumer’s tax

burden PcP*AD).
 3.3 The farm budget
Farming is a way of life adopted as family tradition, a desire to
be self employed a love of nature or other subjective consideration.
Generally, the form of agriculture production enterprise can be either
of the following categories:
• Corporations
• Partnerships
• Co-operatives
The farm is a firm that can have one or more activity, which can
be producing one crop or more.
A budget is simply a plan to coordinate the inflows and out
flows of resources to achieve a given set of objectives. It is concerned
with organizing resources on a farm to maximize profits or more often
achieve family satisfaction (AOAO, 1999).
The farm budget reflects the profitability of a farm on an annual
basis. Also, a farm budget is prepared to evaluate the efficiency of
a particular crop. It is used as a tool to provide the basis for evaluating
and comparing the relative profitability over several years. It is needed
for marketing and processing activities.

3.4 Construction of the budget

The budget consist of costs and return to calculate profits of
a certain activity or activities of crops within a prescribed accounting
period usually one year. So, the budget analysis, which is used in this
study is based on a simple accounting identity (Table 3.1), namely:
Table 3.1 Construction of crop budget.

Item Unit Quantity Price Total

Return

crop A

crop B

Total cost

- Variable cost

- Fixed cost

Gross marginal
revenue

Net profit

Source: Arab Organization for Agricultural Development (AOAD).

 Return = Price * Quantity
Total cost = Variable cost + Fixed cost
Marginal revenue = Return – Variable cost
Profit = Return – Total cost

3.4.1 The revenue

To evaluate the expected revenue of the crop requires
determining the (i) average crop yield during the season, (ii) the
average production price based on gate prices.

3.4.1.1 The farm gate price

Farm gate prices are used for production activities. It is an
average, which accounts for the variation in farm gate prices, the time
of sale and the market outlet. It is also used to value both marketable
produce and by-products that are not sold but consumed in the home
(such as stems of cotton used by the household as a source of energy).
Farm gate price can be calculated for tradable in the following way:
Obtain the CIF prices in case of imported items and the FOB
prices in the case of exported items.
Multiply the CIF or FOB prices by the official exchange rate to
obtain the value of these items in domestic currency denomination.
In order to obtain the farm gate price the border prices (CIF or FOB),
are adjusted for transportation cost between the border of entry and
the location of the farm.

3.4.2 The costs

The total costs include fixed costs and variable costs.
The variable costs of cotton production were determined by
calculating the costs of:
a- Land preparation
b- Cultural operations
c- Cotton picking
d- Material inputs
e- Other cost includes services, water charges
and transport.
The fixed cost includes taxes, fees, zakat, investment cost,
salaries, …etc.
• Taxes and fees of exported crop production are estimated by the
addition of federal taxes to state taxes and fees. The rate of these
taxes is also calculated to identify the tax charges during the tax
reform and their share in the total cost of crop production and
export.
• Taxes and other levies in this study were considered to examine
the affect the tax reform on the cotton production and export.

3.5 Profitability indicators

The profitability is assessed by three different measures:
1. Gross value
It assesses the performance of the enterprise in terms of the
benefits it yields. It is calculated by multiplying the total marketable
product by its average farm gate price.
Gross output revenue = production yield x farm gate price
The gross value revenue is expressed in terms of the value of
US $/acre or US $/ton.
Gross value per feddan = yield * price

2. Gross marginal Revenue

It is obtained by subtracting the variable costs from the gross
output value of the enterprise.
Gross marginal revenue = Gross value – variable cost

3. Net profit
It is obtained by subtracting the estimated total cost of
production of the enterprise from its grass output value (total
revenue).
Total cost = fixed cost + variable cost
Net profit = gross output (total revenue) – total cost

3.6 Correlation coefficient

The correlation coefficient model is only a descriptive statistic
measuring in the degree of covariation between any two variables, it
plays and important role in regression model. It used as a measure of
the strength of a casual relationship (Johnson et al., 1987). Table 3.2
illustrates component of correlation coefficient.
Table 3.2 Calculation of correlation coefficient.

Years y x y-y x–x ( y – y )2 ( x – x )2 ( y – y )( x – x )

∑ Σ y = y/n Σ x = x/n Σ (y – y) Σ (x – x ) Σ ( y – y )2 Σ ( x – x )2 Σ ( y – y )( x – x )

The correlation coefficient between y and x computed as:

r = ∑(y – y )(x – x ) hyg

√ ∑ (y – y )2 ∑ (x – x )2
Where:
r = correlation coefficient
y = the dependent variable
y = the mean of the dependent variable
x = the independent variable
x = the mean of the independent variable
 CHAPTER FOUR
IMPACT OF TAX REFORMS ON COTTON
PRODUCTION AND EXPORT RETURNS

4.1 Introduction
The objective of this chapter is to estimate the impact of taxe
reforms on improving performance of agriculture and government
revenue and to assess the affect of this tax on farmer incentive. This
chapter in particular indicated the impact of tax policy on cotton
output and return in the Gezira Scheme and on cotton export.

4.2 Data and assumptions of the analysis

The study used secondary data obtained from several official
sources and from reports, research concerned with taxes. Theses
sources included the Ministry of Agriculture and Forest, Department
of Agricultural Economic and Statistics, Gezira Scheme Reports,
Custom of the Sudan, Taxes Bureau, Ministry of Foreign Trade,
Ministry of Finance and National Economy, and other Government
Offices.

4.3 Data analysis

The data and information were subjected to different analysis to

estimate the yields and financial returns of cotton production and
export before and after tax reforms within Gezira Scheme. This
included taxes and fees levied at state and federal levels.
 To evaluate the effect of tax reforms, the period of the study was
divided into three phases according to the policy of tax reforms
calendar 1990/91-1995/96, 1996/97-1999/00, 2000/01-2002/03.

4.4 Cotton budget analysis

The analysis used the crop budget of cotton production and
cotton export by calculating the average variable cost, taxes and fees,
and gross returns. The gross marginal revenue was determined. The
farm budget analysis was conducted on two levels:
a- On one feddan average level.
b- On total scheme average level.

4.4.1 The analysis of variable cost of production

The variable cost of cotton production was determined by
calculating the cost items for one feddan. Table 4.1 shows the cost and
percentage change for the three phase’s 1990/91-2002/03.

4.4.1.1 Land preparation cost for one feddan

This included land preparation operations carried out by most

farmers, in addition to extra work carried out by few farmers to excel

their field performance. The average cost of one feddan of cotton land

preparation in the Gezira Scheme amounted to about SD 541.1

in 1990/91-1995/96, increased to SD 3,192.95 in 1996/97-1999/00

and increased also to SD 5,707.5 in 2000/01-2002/03. These increases

were due to the increase in cost of deep ploughing and raising field

Gezira channels costs (Scheme, 2002).

 4.4.1.2 Cultural operations cost
The tenant in the Gezira Scheme carries out all cultural
operations with different levels of performance. These operations
included sowing, weeding, green ridging, thinning, clearing field
channels, watering, fertilizer broadcasting. Table 4.1 show that the
cultural operations cost increased during the three periods from an
average of about SD 907.83/fed to about SD 4,565.35/fed and SD
7,550/fed mainly due to the increases in cost of weeding and irrigation
(Gezira Scheme, 2002).

4.4.1.3 Cotton picking cost

The cotton picking included land preparation, picking, sacking,
stalks pulling and burning. The average of this cost increased from SD
878.4/fed to SD 4,304.88/fed and to SD 5,726.27/fed, respectively
during the three periods. These increases were due to the increases in
cost of picking and stakes pulling (Table 4.1).

4.4.1.4 Material inputs cost

This is the major component of the cotton production cost,
which increased from an average of about SD 2,897.32/fed to SD
12,365.28/fed and to SD 26,664.65/fed for the same periods above
respectively (Table 4.1). These increases were due to the increase in
taxes of pesticides and sacks (Gezira scheme 2000).

4.4.1.5 Other costs

These include cost of administration charges, water charges and
service charges. The average cost of one feddan amounted to about
SD 604.74, about SD 1,931.84 and about SD 3,704.87 during the
three periods. These increases were attributed to increasing water
charge cost (Table 4.1).

4.4.1.6 The total variable cost

Summing up the previous cost item gives the total variable cost
of cotton production in the three periods of the study as shown in
Table (4.1). The total cost amounted to about SD 5,829.39/fed
increased to SD 26, 360.30/fed and to SD 49,353.29/fed, respectively.
Table 4.1 shows the percentage change in cost between the
three phases. The period 1996-1999 recorded the highest changes in
land preparation and cultural operation, which amounted to about
590% and 503%, due to increase on area of production. These rates of
change decreased during 2000-2002.

4.4.2 Analysis of crop returns

The returns for cotton crop per feddan were obtained when the
yield in kintar per feddan is multiplied by the price per kintar.

4.4.2.1 Cotton yield

On average the yield of cotton per feddan during the periods of
the study was found to be 4.23 kintar/fed, 3.10 kintar/fed, 4.94
kintar/fed, respectively (Table 4.2).

4.4.2.2 The farm gate price

The farm gate price is the point of first sale at which it generally
describes the value of production. This is the price that a farmer
received when he sells his production at the farm gate. These prices
vary considerably from market prices by marketing cost margin.
The Sudan Cotton Company Ltd. (SCC) undertakes the
marketing of the Gezira Scheme cotton. The SCC sells cotton lint, and
the Ministry of Industry allocates the seed of cotton to oil
manufacturing enterprises in the Sudan. The procurement price for lint
cotton obtained in the study area amounted to about SD
2,709.65/kintar, SD 10, 626.55/kintar and SD 16,689.75/kintar for the
three successive periods (Table 4.2).

4.4.2.3 Gross returns

From Table 4.2 it was observed that the cotton returns per
feddan were calculated at about SD 11,461.82, SD 32,942.30 and SD
82,447.37 respectively. On the scheme level the gross return on
average increased from SD 2,562 million in 1990-1995 to SD 10,335
million in 1996-1999 and to SD 17,813 million in 2000-2002, due to
increase in cotton price.

4.4.2.4 Gross marginal return before tax

As mentioned earlier, gross marginal return measure the
difference between the gross returns and the variable cost of
productions. So the gross marginal returns per feddan were found to
be about SD 5,632.43, SD 6,582 and SD 33,094.08 (Table 4.2).

4.5 Analysis of impact of taxes and fees on cotton production

The cotton taxes and fees were determined by calculating the
different production taxes in order to compare and calculate the effect
of taxes on cotton crop returns.
These taxes include input tax, production tax, market tax,
local and reserve fees, zakat and other fees such as, self support,
Hassahisa support, medany road support, military and martyr support,
development taxes …etc. Table 4.3 shows the taxes and fees and
percentage of each levy as part of the total tax.

4.5.1 Market taxes

Market taxes are those levied on activities carried out between
farm gate and market. At the scheme level, the market taxes amounted
on average to about SD 102 million in 1990-1995, increased to SD
184 million in 1996-1999 and to SD 385 million in 2000-2002. These
increases were due to the increases in cotton price. The percentage
share of this tax from total production tax during these periods was
24.7% to 37.7% and 31%. In 2001, market tax was removed
(Table 4.3).

4.5.2 Production tax

Table 4.3 shows that the production tax value increased from
about SD 25 million in 1990-1995 to about SD 46 million in 1996-
1999 and to SD 96 million in 2000-2002 due to increase in cotton
price. In 2001 the production tax was removed.

4.5.3 Local and reserve fees

The rate of these fees ranged between 4% and 2% during the
three periods. It amounted on average to about SD 134 million
decreased to SD 114 million due to decrease in cotton yield and
increased to SD 151 million due to increase in yield during the three
periods respectively (Table 4.3).
4.5.4 Zakat
The amount calculated of zakat is based on cotton out
put. During the three phases zakat increased from about SD
67 million on average to SD 126 million to SD 400 million,
respectively. These increases were due to increase in cotton
price. The percentage share of zakat from total production tax
was found to be about 16%, 26% and 33%, respectively
(Table 4.3).

4.5.5 Other taxes

There were other fees and taxes levied by the local
government as a source of revenue such as: sale tax,
development tax, self support, Hassahisa support, Medani
road support, Menagil road support, Kenana road support,
Medani electricity support, stamp tax, military support,
martyr support and technology support.
The values of these fees were reduced from about SD
84 million on average in 1990-1995 to about SD 18 million
in 1996-1999 due to decrease in cotton yield. In 2000-2002 it
increased to SD 190 million due to the levies of new fees and
to the increase in the cotton yield. Its share on the total
production tax decreased from 20.5%, to 15.6% during 1990-
2002 in response to the tax reforms policy (Table 4.3).

4.5.6 Agricultural import tax

Import tax is a certain amount of money estimated as a
rate out of the CIF value of imported agriculture inputs. This
rate in essence ranged between 17% and 21% for fertilizer,
pesticide and sack inputs during 1990-2002. Cotton lint for
exports are packed in Hessian bags.
These are considered as a part of cloth material therefore, high tariff
rate was levied, amounting to 80% of CIF value reduced to 75% in
2000.Table 4.4 shows that the total import tax on cotton production
averaged to about SD 303 million in 1990-1995, increased to about
SD 1,742 million in 1996-1999 and decreased to SD 986 million in
2000-2002 due to decrease in Hessian tariff rate and to the fluctuation
in the area of cotton production.
The share of fertilizer and pesticides on total import taxes
represented the highest share during the three periods, while the share
of sacks represented the lowest one (Table 4.4).

4.5.7 The total taxes and fees of cotton production

Summing up the production tax to the import tax gives the total
taxes and fees on cotton production. It average to about SD 718
million, SD 2,232 million and SD 2,209 million, during the three
periods of the study.

4.6 Impact of production tax and fees on cotton producer

and the Gezira Scheme budget
Table 4.5 shows the impact of tax reforms on cotton producer. The
producer marginal return before tax amounted to about SD
1,331/kintar on average in 1990-95, SD 2,123.23/kintar in 1996-99
and SD 6,699.22/kintar in 2000-2002. The marginal return after tax
was reduced to SD 571.46/kintar SD –171.76/kintar and SD
4,629.54/kintar, respectively.
This indicted a negative return in 1996-99, despite of the tax reform
and the increased crop prices, showing a loss to the farmer because of
the still high production tax and poor productivity.
Table 4.4 Import tax on major production inputs of cotton during
the period 1990-2002 in (SD 000).

1990-1995 % Share 1996-1999 % Share 2000-2002 % Share

Items

Fertilizer 242,907 80.1 1,291,757 74.2 416,336 42.2

Pesticides 44,509 14.7 380,983 21.9 466,356 47.3

Hessian bales 4,325 1.4 32,091 1.8 60,666 6.2

Sacks 11,619 3.8 37,207 2.1 42,798 4.3

303,360 100 1,742,038 100 986,156 100

Total import tax

Source: Based on Secondary Data Collected by the Author.

From Gezira Scheme Office in Khartoum (2002).
Table 4.5 Impact of production tax and fees on producer
revenue during the period 1990/91-2002/03 in SD per
kintar.

1990/91-1995/96 1996/97-1999/00 2000/01-2002/03

Items

Farm gate price/kintar 2,709.65 10,626.55 16,689.75

1,378.10 8,503.32 9,990.53

Production cost/kintar

Marginal return before 1,331.55 2,123.23 6,699.22

tax/kintar

Production and market 760.09 2,294.99 2,069.68

tax/kintar
571.46 - 171.76 4,629.54
Marginal return after
tax/kintar

57% 108% 31%

Tax % from marginal return

55% 27% 21%

Tax % from production cost

Production and market tax includes: impute duties, production income tax, local and
reserve fees, zakat and other fees.

Source: Based on Secondary Data Collected by the Author.

 The increases in return of 2000-2002 were largely due to the
increases in cotton prices and yield.
The farmer yield decreased from 4.23 kintar per feddan in
1990-95 to 3.10 kintar per feddan in 1996-99, may be partially due to
the bad type of fertilizer that used during this period. The yield rose to
4.94 kintar in 2000-2002.
The negative effect of tax policy on farmer return could lead to
reduce interest in following closely the cultural practices of cotton
crop production.
At scheme level, production tax affected the scheme budget by
reducing the gross marginal return. In 1990-95, tax returns recorded
SD 718 million, increased in 1996-99 to SD 2,232 million, despite of
producer losses, due to the increases in area of production.
- The tax percentage from marginal return increased from 57% in
1990-95 to 108% in 1996-99, due to the increases in scheme output
and area of production. In 2000-2002, the marginal dropped down
to 31% due to decreases in area of production and to the tax
reforms (Table 4.6).
- In 1996-99, the gross marginal return after tax became negative.
It’s averaged to about to SD-167 million due to the increases in tax
and fees value and to the cost of production.
The agricultural tax and fees from production cost averaged to
about 55%, 27% and 21%, for the three periods respectively. The
percentage reduced in 2000-2002 due to the decreases in area of
production and tax reforms. About 21% of taxes still considered high
despite of the government decision of reforming this tax and removal
of all state fees.
 7 The correlation coefficient
4.

The data of cotton output and government revenue from

cotton production taxes in Table 4.7 are used to illustrate the
calculation of correlation coefficient. The correlation between y
(government revenue) and x (cotton output) indicated that there
was not much covariance. The r = 0.6 mean that variation in
government revenue was much more closely associated with
cotton output and reflect a positive relationship.
This indicated that the government revenue increased as the
result of expansion on tax bates (cotton output).

4.8 Taxes and fees on cotton export

4.8.1 Custom tax
Custom tax or export tax is a certain amount of money
estimated as a rate out of the FOB value of exported commodities.
This rate in essence amounted to about 10% in 1990-1995, 7% in
1996-1999 and 0% in 2000-2002 of the FOB price of cotton lint
destined for exportation. When calculating the actual amount of tax
levied on actual value of cotton lint bales for exports the following
results were obtained: the custom value amounted to about SD 169
million, SD 942 million and zero, for the three periods respectively
(Table 4.8).

4.8.2 Export company fees

Export company fees represent about 1% of the FOB price. It
increased from SD 16 million in 1990-1996 to SD 133 million in
Table 4.7 Calculation of the correlation coefficient between
government revenue and cotton output, during
the period 1990-2002.

Years Output/kintar Revenue/SD

1990 1071970 7604372
1991 1211132 26248628
1992 725009 16476300.7
1993 754479 65350814
1994 988044 441436856
1995 1229178 1933259547
1996 1267910 820966009
1997 1104642 532770668
1998 690344 311831847
1999 625002 294413285
2000 925468 185415185
2001 1025372 667835601
2002 1251114 1146771368

r = 0.6

Source: Based on secondary data collected by the author.

1996-1999 and decreased to SD 131 million in 2000-2002 due to
decreases in exported cotton bales.

4.8.3 Sudan Cotton Company fees

As it was mentioned before, the Sudan Cotton Company under
takes the marketing of cotton crop, so it takes about 1% of the cotton
FOB price. The levies of the company increased from about SD 16
million to SD 133 million and decreased to about SD 131 million,
respectively (Table 4.8).

4.8.4 Reserve storage fees

The rate of the storage fees represented about 2% of the FOB
price. The actual value of these fees accounted to about SD 33 million
on average, increased to about SD 266 million and decreased to about
SD 262 million respectively. These decreases were due to decreases
on exported cotton bales.

4.8.5 Seaport Corporation fees

It represents about 0.5% of FOB price of cotton lint. Table 4.8
shows that these fees increased from SD 8 million to SD 66 million
and decreased to SD 65 million due to decrease in export of cotton
bales (Table 4.8).

4.8.6 Standard and metrology department fees

It represents about 0.5% of the FOB price of cotton lint.
It accounted about SD 8 million, SD 66 million and SD 65 million
during 1990-2002 respectively (Table 4.8).
4.8.7 Bales preparation fees
It increased from SD 50/bale to SD 663/bale during 1990-2002.
As a total, these fees increased from SD 21 million to SD 63 million
and to SD 196 million for the three periods respectively. due to
increase in the bale fees.

4.8.8 The total tax and fees of cotton export

Table 4.8 shows that the total export tax and fees increased
from an average of about SD 275 million in 1990-95 to SD 1,673
million in 1996-99 as a result of high increases on the bale fees and
FOB prices (Table 4.9). In 2000-02 the tax and fees value decreased
to SD 852 million compared to period 1996-99 due to decrease on
exported cotton bales.

4.9 Impact of export tax and fees on the cotton export

Export tax and fees represent high rate of the crop marginal
return and cost. It represented about 20% of total cost in both 1990-95
and 1996-99. Despite of the tax reforms, the export fees in 2000-2002
represented about 8% of the total cost (Table 4.9).
These high rates of tax and other constraints, such as low
productivity, infection with honey and the weakness of the
infrastructure, may affect the quantity of cotton export, cotton exports
were reduced from about 424506 bales to 348079 bales and to 279914
bales in the three period respectively.
The exporter marginal return before tax amounted to about
SD346 million on average in 1990-95, about SD 5,034 million in
1996-99 and about SD 2,422 million in 2000-2002. The marginal
return after tax was reduced to SD 71 million, about SD 3,361 million
and about SD 1,569 million respectively.
Export tax rate out of marginal return was reduced from 79% to

33%and increased to 35% mainly due to the reduction in quantity

of export and tax reforms (Table 4.9).

4.10 Total tax and fees on cotton production and export

Table 4.10 shows the total tax on cotton production and export.
It was observed that the production tax represented the highest share
out of total tax during the three phases of the study.
Table 4.9 Impact of taxes and fees on cotton export
during the period 1990-2002.

Budget item 1990 – 1995 1996 – 1999 2000 – 2002

FOB price (SD000) 1,692,442 13,339,155 13,108,872.67

Quantity of cotton export (Bales) 424506 348079 279914
Production cost (SD000) 1,303,100 8,270,044 10,663,074
Marketing cost (SD000) 42,451.6 34,807 23,836.8
Total cost (SD000) 1,345,551 8,304,852 10,686,910.8
Marginal return before tax 346,891 5,034,303 2,421,961.87
(SD000)
Export tax and fees (SD000) 275,090 1,672,774 852,076.7
Marginal return after tax 71,801 3,361,529 1,569,885.17
(SD000)
Tax % from marginal return 79% 33% 35%
Tax % from total cost 20% 20% 8%

Source: Based on Secondary Data Collected by the Author.

 CHAPTER FIVE
SUMMARY, CONCLUSIONS AND
RECOMMENDATIONS

This chapter gives summary of the study, concludes it and

presents some recommendations.

5.1 Summary
The importance of this study evolved from the fact that taxes
have an effective role in agricultural performance in Sudan and
government revenue.
Taxes had been reformed during 1990-2002. This study
focused on investigating the impact of tax reforms on cotton
production of the Gezira scheme and export during 1990-2002.
The objective of this study concentrated on the assessment of
farmer incentives for producing cotton using the tax policy reform in
increasing his output and returns.
Also this study aimed at evaluating the effect of tax reforms on
exports cotton during the period of the study and assessment of the
impact of these reforms on government revenue.
Secondary data were collected from different sources
including the Gezira scheme authorities, Gezira scheme office in
Khartoum, Sudan Custom Department, Tax Bureau and Ministry of
Finance and National Economy. Also secondary data was obtained
from Ministry of Foreign Trade, Ministry of Agriculture and forest,
Agricultural Economics Department and from Reports and documents
related to the study.
 The analysis of this study was conducted for the periods of
1990-1995, 1996-1999 and 2000-2002. In attempt to achieve the
objective of the study budget analysis were used.
In assessing of the impact of tax reforms on cotton production
and export, the study found that:
- Cotton production cost was very high, specially input cost
which were estimated at about 48%, 45% and 47% of the total
cost during 1990-95, 1996-99 and 2000-2002, respectively.
- Despite of the tax reforms, production tax and fees,
represented high rate of producer marginal return. It was about
57%, 108% and 31%, respectively.
- Production tax and fees still represent high percentage of the
production cost, though, they were reduced from about 55%, 27%
and 21%, respectively.
- There were increases in informal taxes cost by about 55%.
- Import duties were high affecting cost of imported inputs
increasing cost of production during 1990-2002.
- Government return increased as a result of expansion in tax
bates (i.e cotton output).
- In export stage, export tax and fees still represent high rate of
marginal return despite of the tax reforms. It dropped, but still
high, from a level of 79% in 1990-1995 to 35% in 2000-2002.

5.2 Conclusions
Conclusions of the study can be summarized as follows:-
- Despite of the tax reforms, agricultural performances have still
been affected negatively by the existence of taxes and fees.
- Agricultural inputs cost have been increased by import duties,
which led to increase in production cost.
- Although, custom taxes were removed in 2000, cotton export
still experienced some sort of taxes and fees. These exported taxes
were reduced, but still represented high share of marginal revenue
of cotton exports. Therefore, it may be expected that such tax
policy reforms have minimal affect on increasing cotton exports.
- Government tax revenue increased as a result of expansion of
tax bates (i.e cotton out put).

5.3 Recommendations
- All production tax and fees should be reduced particular at
states level so as to ensure positive incentives for cotton
producers.
- Export fees should be removed to enhance cotton
competitiveness in world market.
- The federal government has to supervise and ensure the
implementation of tax removal in all states.
- Custom tariff for inputs should be minimized except that of
the protection purposes.
- All WTO protocols encourage legal legislation clearly
stipulated out in the Sudan Gazette, abolishing administrative,
regulation, rules and laws.
 Table 4.1 Variable cost of cotton production for the Gezira
Scheme in SD per feddan during the period 1990/91-2002/03.

Cost item 1990/91-95/96 % change 1996/97-99/00 % change

Land preparations 541.10 100 3,192.95 590

Cultural operations 907.83 100 4,565.35 503

Cotton picking 878.4 100 4,304.88 490

Material inputs 2,897.32 100 12,365.28 427

Other cost 604.74 100 1,931.84 319

Total cost 5,829.39 100 26,360.28 452

Source: Based on Secondary Data Collected by the

Author.
 Table 4.2 Average farm gate price, average yield and average
gross marginal returns of cotton production in the Gezira
Scheme for the season of 1990/91-2002/03.

Average farm
Season Average cotton Average gross Average
gate price
yield kintar/fed return Sd /fed SD/fe
SD/kintar

1990/91-1995/96 2,709.65 4.23 11,461.82 5,829.3

1996/97-1999/00 10, 626.55 3.10 32,942.30 26,360.

2000/01-2002/03 16,689.75 4.94 82,447.37 49,353.

Source: Base on Secondary Data Collected by the Author.

Table 4.3 Production and marketing taxes and fees for cotton of
the Gezira Scheme level in SD 000 for
the seasons of 1990/91-2002/03.

Tax and fees 1990/91-1995/96 % 1996/97-1999/00 %

Marketing tax 102,555 24.7 184,967 37.7

Production income tax 25,654 6.1 46,097 9.4

Local and reserve fees 134,665 32.4 114,032 23.3

Zakat 67,538 16.3 126,882 25.9

Other taxes 84,946 20.5 18,018 3.7

Total tax and fees 415,3587 100 489,996 100

Source: Based on Secondary Data Collected by the

Author.
Table 4.6 Impact of production and marketing taxes and fees on
the Gezira Scheme in SD 000 for
the seasons of 1990/91-2002/03.

Budget item 1990/91-1995/96 1996/97-1999/00

Gross return (SD000) 2,562,176 10,335,019

Area of production (feddan) 223540 313731
Cotton price (SD/ kintar) 2,709.65 10626.55
Quantity of cotton (kintar) 945574 972566
Production cost (SD000) 1,303,100 8,270,044
Marginal return before tax (SD000) 1,259,076 2,064,975
Total production tax (SD000) 718,719 2,232,034
Marginal return after tax (SD000) 540,357 -167,059
Tax % from marginal return 57% 108%
Tax % from production cost 55% 27%

Source: Based on Secondary Data Collected by the Author.

Table 4.8 Export taxes and fees on cotton in SD 000 during the
period 1990-2002.

Cost item 1990-1995 % 1996 – 1999

Custom tax 169,244 61.5 942,569

Exports company fees 16,924 6.2 133,392

Sudan cotton company fees. 16,924 6.2 133,392

Reserve storage fees 33,849 12.3 266,783

Sea port fees. 8,462 3.1 66,696

Standard and metrology Department fees 8,462 3 66,696

Bales fees 21,225 7.7 63,246

Total tax and fees 275,090 100 1,672,774

Source: Based on Secondary Data Collected by the

Author.
 Table 4.10 Total agricultural tax (production, marketing and
export) on cotton crop value of the Gezira scheme
during the period 1990/91-2002/03.

Items 1990/91-95/96 % Share 1996/97-99/00 %Sha

Production and marketing tax and fees

(SD 000) 718,719 72 2,232,034 57
Export tax and fees (SD 000) 275,090 28 1,672,774 43

Total tax and fees 993,809 100 3,904,808 100

Source: Based on Secondary Data Collected by the

Author.
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Khartoum.

Shoke, F.A.A. (1997). Factor affecting cotton yield in the Gezira Scheme. “A case study of
Rewina area”. M.Sc. Thesis, University of Khartoum.

Sudan Cotton Company.(2002). Annual Reports.

Yasseen, G.A.M. (2001). Constraints of gum Arabic production and export: A case study
North Kordofan State. M.Sc. Thesis, University of Khartoum.
 ‫ﺍﻟﻤﺭﺍﺠﻊ ﺍﻟﻌﺭﺒﻴﺔ‬

‫ﺍﻟﺠﻤﺎل‪ ،‬ﻋﺒﺩﺍﻟﻤﻨﻌﻡ )‪ .(1980‬ﺍﻟﺴﻴﺎﺴﺔ ﺍﻟﻀﺭﻴﺒﻴﺔ‪ .‬ﺍﻟﻁﺒﻌﺔ ﺍﻷﻭﻟﻰ‪.‬‬

‫ﺍﻟﺴﻴﺩ‪ ،‬ﺴﻠﻴﻤﺎﻥ ﺴﻴﺩ ﺃﺤﻤﺩ )‪ .(2000‬ﺍﻟﺯﺭﺍﻋﺔ ﻭﺘﺤﺩﻴﺎﺕ ﺍﻟﻌﻭﻟﻤﺔ‪ ،‬ﺍﻟﺨﺭﻁـﻭﻡ –‬

‫ﺍﻟﺴﻭﺩﺍﻥ‪.‬‬

‫ﺍﻟﻤﻨﻅﻤﺔ ﺍﻟﻌﺭﺒﻴﺔ ﻟﻠﺘﻨﻤﻴﺔ ﺍﻟﺯﺭﺍﻋﻴﺔ‪ .(1999) .‬ﺍﻟﺩﻭﺭﺓ ﺍﻟﺘﺩﺭﻴﺒﻴﺔ ﺍﻟﻘﻭﻤﻴـﺔ ﻓـﻲ‬

‫ﻤﺠﺎل ﺘﺤﻠﻴل ﺍﻟﺴﻴﺎﺴﺎﺕ ﺍﻟﺯﺭﺍﻋﻴﺔ – ﺍﻟﻤﻤﻠﻜﺔ ﺍﻷﺭﺩﻨﻴﺔ ﺍﻟﻬﺎﺸﻤﻴﺔ‪ ،‬ﻋﻤﺎﻥ‪.‬‬

‫ﺩﻴﻭﺍﻥ ﺍﻟﻀﺭﺍﺌﺏ‪ (2000) .‬ﺘﻘﺎﺭﻴﺭ ﻤﺨﺘﻠﻔﺔ‪.‬‬

‫ﺴﻠﻴﻤﺎﻥ‪ ،‬ﻋﻠﻲ ﺃﺤﻤﺩ ‪ .(1970).‬ﺍﻟﻀﺭﺍﺌﺏ ﻓﻲ ﺍﻟﺴﻭﺩﺍﻥ‪.‬‬

‫ﺴﻴﺩ‪ ,‬ﻓﺘﺤﻲ ﺴﻴﺩ ﺍﺤﻤﺩ‪ .(1992) .‬ﻭﺭﻗﺔ ﻋﻤل ﻋﻥ ﺍﻟﻀﺭﺍﺌﺏ ﺍﻟﺯﺭﺍﻋﻴـﺔ ﻓـﻲ‬
‫ﺍﻟﺴﻭﺩﺍﻥ‪.‬‬

‫ﻋﻤﺎﺭﺓ‪ ,‬ﻓﻴﺼل ﺒﺨﻴﺕ‪ .(2000) .‬ﺍﻟﻀﺭﺍﺌﺏ ﻓﻲ ﺍﻟﺩﻭل ﺍﻟﻨﺎﻤﻴﺔ ﺃﺜﺭﻫـﺎ ﻋﻠـﻰ‬

‫ﺍﻟﺘﻨﻤﻴﺔ ﺍﻻﻗﺘﺼﺎﺩﻴﺔ ﻓﻲ ﻅل ﺍﻟﺘﻁﻭﺭﺍﺕ ﺍﻟﻌﺎﻟﻤﻴﺔ ﺍﻟﺠﺩﻴﺩﺓ‪.‬‬

‫ﻤﺤﻤﻭﺩ‪ ،‬ﻋﺒﺩﺍﷲ ﺍﻟﺸﻴﺦ ‪ .(1989).‬ﺍﻗﺘﺼﺎﺩﻴﺎﺕ ﺍﻟﻤﺎﻟﻴﺔ ﺍﻟﻌﺎﻤﺔ‪.‬‬

‫ﻭﺯﺍﺭﺓ ﺍﻟﺯﺭﺍﻋﺔ ﻭﺍﻟﻐﺎﺒﺎﺕ‪ .(1998) .‬ﺃﺜﺭ ﺍﻟﻀﺭﺍﺌﺏ ﻭﺍﻟﺭﺴﻭﻡ ﻋﻠـﻰ ﺍﻹﻨﺘـﺎﺝ‬

‫ﻋﻠﻲ ﺇﺒﺭﺍﻫﻴﻡ ﺍﻟﺨﻠﻴل – ﻓﺎﻁﻤﺔ ﺃﺤﻤﺩ ﺇﺒﺭﺍﻫﻴﻡ‪.‬‬ ‫ﺍﻟﺯﺭﺍﻋﻲ‪،‬‬

‫ﻭﺯﺍﺭﺓ ﺍﻟﺯﺭﺍﻋﺔ ﻭﺍﻟﻐﺎﺒﺎﺕ‪ .(1999).‬ﺃﺜﺭ ﺍﻟﻀﺭﺍﺌﺏ ﻭﺍﻟﺭﺴـﻭﻡ ﻋﻠـﻰ ﺍﻹﻨﺘـﺎﺝ‬

‫ﺍﻟﺯﺭﺍﻋﻲ‪.‬‬
Appendix 1. Production and marketing taxes and fees for the Gezira Scheme level in SD during the period1990-
2002.

Production Local and

Season Market tax
income tax reserve fees
Zakat Other fees Total
1990/91 2,975,029.6 373,606 3,080,110 929,696.8 245,929.6 7,604,372
1991/92 7,331,421.6 2,291,069 7,271,196.8 9,089,002 265,938.7 26,248,628
1992/93 23,672,583.9 670,681 11,229,566 1,655,869 247,600.8 16,476,300.7
1993/94 20,209,964 5,052,491 26,505,977 12,631,227.7 951,154.5 65,350,814
1994/95 139,116,693 34,779,173 134,014,525 86,947,933 46,578,532 441,436,856
1995/96 443,024,986 110,756,246.6 625,891,481.8 293,972,919.8 459,613,913.5 1,933,259,547
Average 102,555,112.9 25,653,387.8 134,665,476.1 67,537,774.7 84,946,011.8 415,357,633
1996/97 245,579,578 61,394,894.6 336,476,016.5 172,599,433.6 4,916,085.8 820,966,008.5
1997/98 230,866,236.5 57,138,466 57,138,466 160,949,862.8 26,6787,637 532,770,668.3
1998/99 141,046,895 35,261,723.7 31,939,747 88,154,356.9 15,429,125 311,831,847.6
1999/00 122,374,337 30,593,584 30,571,789.9 85,822,784.9 25,050,789.5 294,413,285.3
Average 184,966,761.6 46,097,167 114,031,504.9 126,881,609.6 18,018,409.3 489,995,452.4
2000/01 1,155,114,000 288,777,000 98,636,162 264,290,661 47,334,028 1,854,151,851
2001/02 0 0 154,742,613 412,197,857 100,895,131 667,835,601
2002/03 0 0 200,315,146 524,076,436 422,379,786 1,146,771,368
Average 385,038,000 96,259,000 151,231,307 400,188,318 190,202,981.7 1,222,919,607

Source: Gezira Scheme (2002).

Appendix 2. Export taxes and fees for cotton export in SD 000 during the period 1990-2002.

Year Export co. Sudan cotton Reserve Sea port co. Standard and
FOB price Custom tax Bales fees
fees co. fees storage fees fees metrology fees
1990 219,574 21,957 2,195 2,195 4,391 1,097 1,097 34,446
1991 168,875 16,887 1,688 1,688 3,277 84 84 23,042
1992 444,765 44,476 4,447 4,447 8,895 2,223 2,223 15,971
1993 699,152 69,915 6,991 6,991 13,983 3,495 3,495 14,407
1994 2,225,724 222,572 22,257 22,257 44,514 11,128 11,128 20,847
1995 6,396,566 639,656 63,965 63,965 128,032 32,742 32,742 18,636
Average 1,692,442 169,244 16,924 16,924 33,849 8,462 8,462 21,225
1996 10,787,882 863,030 107,879 107,879 215,576 53,939 53,939 41,386
1997 14,215,328 1,137,226 142,153 142,153 284,306 71,077 71,077 41,369
1998 17,617,478 1,233,223 176,175 176,175 352,349 88,087 88,087 77,995
1999 10,735,930 536,796 107,359 107,359 214,901 53,680 53,680 92,234
Average 13,339,155 942,569 133,392 133,392 266,783 66,696 66,696 63,246
2000 13,891,474 0 133,814 133,814 267,629 66,907 66,907 153,953
2001 10,826,380 0 108,263 108,263 216,527 54,131 54,131 144,612
2002 15,118,765 0 151,187 151,187 302,375 75,593 75,593 291,333
Average 13,108,872.67 0 131,088 131,088 262,177 65,544 65,544 196,633
Source Sudan Cotton Company