III. MECHANISMS FOR INTEGRATING ENVIRONMENTAL CONSIDERATIONS INTO AGRICULTURAL POLICY

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B. Agricultural incentives

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2. Income Tax Act, 1967 (amended in 1986)

The incentives relevant to the agriculture sector under the Income Tax Act, 1967, are detailed below.

Companies can claim capital allowance or agricultural allowance under schedule 3 of the Income Tax Act, 1967, in respect of certain capital expenditures incurred for purpose of that business. The capital expenditure incurred in carrying out agricultural activities that are eligible for deduction are:

• Expenditures incurred in clearing and preparing land, crop planting and the construction of roads for agricultural purposes, is eligible for a yearly allowance of 50 per cent of the expenditure incurred;
• Expenditures incurred in the construction of buildings for the welfare of persons or living accommodation can be written off at a rate of 20 per cent per annum;
• Expenditures incurred in the construction of other buildings to be used for the purposes of operating a farm can be written off over a period of 10 years.

As long as companies incur the above qualifying expenditures they will be granted the allowance, irrespective of whether or not they have been granted pioneer status or ITA. Since pioneer status companies cannot benefit from the allowance during their tax holiday period, the allowance (which falls under the capital expenditure schedule), will be available for deduction against post-pioneer period income. Therefore pioneer status companies may not be liable for income tax payment on business income from agricultural activities over a much longer period.

This incentive is provided under Schedule 4A of the income Tax Act, 1967, which allows persons carrying out an approved agricultural project to elect for the qualifying capital expenditure incurred by them in respect of that project to be deducted from the aggregate income (including income from other sources). Persons who select that option will not be entitled to any capital allowance or agricultural allowance on the same capital expenditure. The qualifying capital expenditures eligible for deduction for the purpose of this incentive are:

• The clearing and preparation of land;
• Crop planting (but not replanting) in relation to an agricultural project;
• The construction on a farm of a road or bridge;
• The construction on a farm of a building to be used for an approved agricultural project that is carried out on that farm, or the construction on that farm of any building to be provided for the welfare and accommodation of persons employed in that project and which, if that project is terminated, is likely to be of little or no value to any person except in connection with the working of another farm;
• The construction of a pond or the installation of an irrigation or drainage system that is to be used for the purposes of an approved agricultural project.

An "approved agricultural project" refers to a project approved by the Minister of Finance. Only the qualifying capital expenditure incurred within a specific timeframe and in respect of a farm cultivating and utilizing a specified minimum hectarage for each approved project, as stipulated by the Minister of Finance, will qualify.

This incentive is not given to:

• A company that has been granted pioneer status in respect of any promoted activity or promoted product and that is applying or intending to apply for a pioneer certificate;
• A company that has been granted a pioneer certificate in respect of any promoted activity or promoted product, and whose tax relief period has not ended or terminated;
• A company that has been granted ITA in respect of any promoted activity or promoted product, provided the prescribed period has not ended or been terminated;
• A company that has been granted a pioneer certificate, labour utilization relief and locational incentives under the repealed Investment Incentives Act, 1968, and whose tax period has not ended or been terminated;
• A company that has been granted investment tax credit under the repealed has not ended or ceased.

Where there is insufficient aggregate income for the qualifying farm, expenditures to be deducted from the unabsorbed expenditure will be carried forward to subsequent years of assessment.

Applications for the agricultural allowance and deduction for capital expenditures on approved agriculture projects should be submitted to the Department of Inland Revenue.

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