Tax cuts on rice and wheat imports here to stay, says minister

The new controversial tariffs on wheat and rice imports are here to stay, Finance minister Uhuru Kenyatta said on Wednesday citing binding agreements with other EAC member states and Pakistan.

In his budget for the current fiscal year, Mr Kenyatta lowered duty on rice imports into the country from 75 per cent or $200 per tonne, whichever is higher, to 35 per cent.

He also lowered duty on wheat from 35 per cent to 10 per cent for a period of one year, saying the move was aimed at addressing a deficit of the two commodities.

The tariff reduction has, however, been met with opposition from pockets of the farming community and traders who said the move would endanger their livelihood by giving an upper hand to external producers. They demanded that the action be reversed.

“The decision by the minister to reduce import on wheat will have a negative impact of reducing farmers earnings from the current Sh2,700 per 90kg bag down to Sh2,200,” said Cereals Growers Association CEO David Nyameino.

“Consumers will not benefit since the price reduction will be too little. The government has always imported 35 per cent of the wheat in the market, reducing tax will tamper with market prices and create a risk of massive job losses by discouraging local production.”

Growers in Narok have also taken to the streets with several Cabinet ministers, including Agriculture’s Sally Kosgei, asking for a reversal of the new tariffs.

On Wednesday, Mr Kenyatta maintained that the tariffs were arrived at following negotiations between EAC member states and guided by an existing bilateral trade arrangement with Pakistan on rice and tea trade.

The minister said regional countries jointly accepted to lower duty on wheat to help address a major deficit in East Africa, which only produces about 20 per cent of the total demand of the commodity.

“The 10 per cent we got was no mean achievement because other countries in the region were demanding zero tariff,” Mr Kenyatta told Parliament. “Raising duty on wheat imports to Kenya way and above the other neighbours would under such circumstances only result into smuggling in the country and affect the same farmers and traders.”

Not act unilaterally

He said though Kenya’s current wheat production capacity was higher compared to other EAC members, it would not act unilaterally and in contravention to the regional common market arrangement.

“We cannot impose higher rates when other countries are producing,” the minister said noting that reversing the new tariffs would require consultations with other EAC member countries. “We shall place a petition to have the matter discussed.”

Mr Kenyatta further said the new tariff on rice imports was also bound by the EAC common market pact and a bilateral arrangement with Pakistan on tea and rice trade.

Kenya and Pakistan value their current trade pact because Kenya produces only about a third of its annual rice demand of 250,000 tonnes with a bulk of the shipments to fill the deficit coming from Pakistan.

Pakistan, on the other hand, has for many years been the largest buyer of Kenyan tea.

For instance, in the first quarter of 2010 Pakistan remained among the highest buyers of Kenyan tea.

To support this arrangement, for many years Kenya and other East African Community nations have pegged the common external tariff (CET) on rice imports at 75 per and an extra preferential 35 per cent import duty in line with provisions of the harmonised community description and coding system.

In his 2010/11 budget, Mr Kenyatta lowered the duty on rice imports to the country to 35 per cent from 75 per cent but only on a temporary basis — over the next twelve months.

“Our tea and rice trade with Pakistan is sensitive and we must deal with caution,” Mr Kenyatta told Parliament.

In a move targeted at protecting their own growers, Kenya, Tanzania and Uganda unsuccessfully tried to begin charging a duty of 75 per cent on all rice imports entering their markets from January 1, 2005.

This drew the wrath of Pakistani rice exporters who pressured their government to arm-twist Kenya into deferring the duty or slap them with a reciprocal raise in the import duty of tea.

Kenya threw in the towel first and submissively approached its fellow EAC members to shelve the import duty plans for some time until June 30, 2009.