Ministry proposes VAT waiver to spur tea earnings

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Agriculture PS Sicily Kariuki said last week that the tax ad valorem levy - which is a tax charged on the value of tea - would be reduced from one to 0.75 per cent following an outcry from the industry.

The ministry of Agriculture has proposed to waive value added tax (VAT) and reduce ad valorem levy charged on Kenyan tea in order to make the beverage competitive in the wake of a slump in world prices.

Agriculture principal secretary Sicily Kariuki said last week that the tax ad valorem levy - which is a tax charged on the value of tea - would be reduced from one to 0.75 per cent following an outcry from the industry.

The proposals, Ms Kariuki said, have been included in the in new draft tea regulations and have been submitted to the office of the Attorney General.

“We have proposed for the reduction of the ad valorem tax and a waiver on VAT following complaints from the stakeholders,” said Ms Kariuki.

She said the 0.75 per cent was arrived at after a meeting with the stakeholders that involved officials from the tea directorate, a division within the ministry of Agriculture.

Ms Kariuki said her ministry had also forwarded a request to the National Treasury for consideration for a waiver of VAT on locally sold tea for inclusion in the 2015/16 financial year.

“The waiver will spur local tea sales hence increase local consumption,” she said.

Kenyans consume less than 10 per cent of the local tea, with 90 per cent finding its way to the world market, making the country a leading exporter followed by India and China.

She said that the tea directorate has also made proposals that would see changes related to licensing of tea dealers in order to reduce the cost of doing business.

The stakeholders in the tea sector have been complaining about the taxes saying that they had made Kenyan tea uncompetitive in the wake of low prices in the world market.

“Our tea has just become uncompetitive in the market because of all these levies. Other teas trading at the auction are cheap because these taxes are not levied on their commodity,” said Mr Peter Kimanga, a director at the Global Tea Commodities.

He noted that the taxes have a discriminative effect on Kenya teas compared to the other eight countries offering the produce through the same auction.

Mr Kimanga told the Business Daily that the levies have slowed Kenya’s bid to benefit from value addition, which is what the market is current demanding.

“Packers who want to venture into value addition for export have been hindered by these levies,” said Mr Kimanga.