Farmers slapped with 16pc VAT on key imported input

Farmers face higher costs of production following proposals by the Treasury to impose a 16 per cent tax on imports of key inputs such as fertiliser, insecticides, seeds and farm machinery.

The Value Added Tax Bill 2012 published on Thursday by Finance minister Njeru Githae shows that the goods have been struck off the list of items previously exempted from taxation.

“Farmers face a difficult time because the will pay VAT for seeds, fertilisers and machinery shipped in should Parliament pass the proposals,” Mr Martin Kisuu, a partner with consultancy firm PKF said on the sidelines of a seminar on the 2012/13 budget.

Several farm equipment such as ploughs, disc harrows, combine harvester-threshers, milking machines, poultry incubators and brooders and dryers that were previously zero-rated will now attract tax according the Bill tabled in Parliament during the reading of the budget statement.

The move is expected to increase the cost of production in the sector, leaving farmers with smaller margins.

It could also translate to higher prices of consumer products such as food as farmers pass on the extra costs.

Mr Kisuu said the inputs have a direct bearing on production.

“When cost of input rises it means lower returns which could affect investment in the sector,” he said.

Agriculture and forestry sector remain the key drivers of the economy with statistics by the Economic Survey 2012 indicating that its Gross Domestic Product (GDP) share contribution increased from 21.4 per cent in 2010 to 24 per cent in 2011.

This makes the performance of the sector a key factor to economic growth.

Growth in the sector has faced a number of challenges from failed weather to high cost of input such as fertiliser and diesel that is used to drive farm machinery such as tractors.

The cost of petroleum products and their by-products have been rising in recent years partly due to increasing global demand.

Analysts said the introduction of taxation on input such as fertiliser and seeds would only worsen the food production problem, denying the country an opportunity to post robust growth.

“The government should look for alternative and creative sources of revenue.

Punishing farmers through hefty taxes will be felt in the entire economy,” Peter Njenga, a large-scale grain dealer in Nairobi.