Farm inputs tax to cut production by half, warn traders
Trucks deliver maize at an NCPB depot. Food production is forecast to fall by up to 50 per cent should Value Added Tax be charged on farm inputs as proposed in a Bill pending before Parliament. Photo/FILE
Food production is forecast to fall by up to 50 per cent should Value Added Tax be charged on farm inputs as proposed in a Bill pending before Parliament.
The Agro Chemicals Association of Kenya (AAK), the umbrella organisation for farm inputs and technology suppliers, said farmers bear additional costs even without the VAT on fertilisers, pesticides and other machinery.
“The import bill of agrochemicals is about Sh8 billion and imposing a 16 per cent tax will see farmers absorb the same from our members,” AAK chairman Kuria Gatonye told the Agriculture Committee of Parliament.
The Fertiliser Association of Kenya said the levy would hurt demand for the inputs and affect harvests.
AAK opposed the VAT on inputs because local manufacturers who accounts for less than 10 per cent of the total agrochemicals would also levy the tax, said Mr Gatonye.
The committee is receiving views on the impact of the proposed VAT Bill, which seeks to reinstate taxation on most zero-rated agricultural and food items.
If passed into law, the Bill would affect several items including fertiliser, pesticides, maize flour, wheat, cotton gin, water pumps and farm machinery.
Finance Minister Njeru Githae withdrew the Bill from debate two weeks ago after it received stiff opposition from MPs and stakeholders to pave the way for consultations.
Mr Githae has since said the Cabinet agreed to exempt taxation on imported food items, seeds and learning materials.
However, the Kenya Revenue Authority Commissioner General, John Njiraini, has cautioned MPs against mutilating the Bill, saying its passing is critical to economic growth.
The Fertiliser Association of Kenya (FAK) secretary Satish Kumar Bhatia said Kenya imports about 500,000 tonnes of fertiliser at a cost of Sh25 billion, excluding shipments for the flower industry.
He said the industry has about Sh12.5 billion as working capital for distribution and storage and “if VAT is imposed on agricultural imports, the industry will need to raise additional investment of Sh2 billion as working capital.”
FAK said the imposition of VAT would increase the cost of fertiliser by about three per cent.
“Approximately one per cent will be levied at the distribution level, making the end user to pay about 20 per cent more for the commodities,” he said.
Out of the 500,000 metric tonnes of imported fertilisers, DAP constitute about 200,000 tonnes, CAN and Urea 50,000 tones each, NPK 150,000 tonnes and other types 50, 000 tonnes.
“If VAT is imposed and the cost of distribution and storage is factored in, a farmer in Kitale where DAP retails at Sh4,000 would pay an additional Sh800 for a 50kg bag,” Mr Bhatia told the committee.
“The Bill negates the government policy on subsidised fertiliser where DAP today retails at Sh2, 500 against the market price of Sh4, 000,” FAK said.
