Paraguay’s government wants to put a 6 percent tax on the country’s burgeoning soy exports, a measure that could aggravate already tense relations between left-leaning President Fernando Lugo and the farm sector.
Soy cultivation has expanded rapidly in the South American country, which is the world’s fourth-biggest soybean exporter.
The farm sector accounts for 36 percent of gross domestic product but only 2.5 percent of the government’s tax-take, according to official figures that are disputed by farmers.
"This is the only country where (grains producers) practically pay no taxes," said Ramon Gomez, a senator and ally of the president who is sponsoring the tax bill.
"In recent years they have had huge production, and they have not shared the wealth," Gomez added.
Soy, Paraguay’s biggest export, helped propel the country’s record-high 15 percent economic expansion last year. Growers say the proposed tax would stunt the agriculture sector’s growth at a time of growing world food demand.
The levy would also apply to corn and sunflowers, but those crops are relatively small in Paraguay.
Farmers produced a record soy crop of 8.4 million tonnes in the 2010/11 season, while its most recent corn harvest was 3 million tonnes and the sunflower crop came in at 123,000 tonnes.
At 2.9 million hectares, Paraguay’s soy area is five times bigger than it was in 1990.
‘GREAT POTENTIAL’
The country exports about 70 percent of its soy, and the government expects to rake in $120 million per year with the proposed tax. It began campaigning hard for the bill in recent days as part of its effort to fund the 2012 budget.
The proposal is modest compared with the 35 percent levy that neighboring grains powerhouse Argentina slaps on soy exports.
President Lugo does not have a majority in the Senate, which puts the onus on Gomez to garner support for his bill while farm groups lobby against it. They say their current tax contribution is not being properly recorded and that it actually accounts for about a third of government revenues.
Hector Cristaldo, head of the country’s UGP growers union, calls the tax proposal "an absurd form of intervention."
"Paraguay has great potential and could be a big food producer for the world, but this could slow the sector’s development," he said.
Soy exports from the country totaled about $1.6 billion last year. The business is handled by international trading companies such as Cargill [CARG.UL], Archer Daniels Midland (ADM.N) and Bunge (BG.N).
But growers worry that it is they, and not the export companies, who would end up paying the proposed tax.
The debate will likely heat up in the months ahead as the finance ministry develops a parallel proposal for raising farmers’ income taxes.
"We will pursue both proposals at the same time," Geronimo Bellassai, deputy tax minister, has told reporters.
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