Uhuru directs Treasury to slash levies for tea farmers

Taxes levied on tea growers are set for review following a directive by President Uhuru Kenyatta aimed at promoting value addition and increasing returns to farmers.

During a meeting with sector stakeholders on Wednesday, Mr Kenyatta directed the Treasury to look at VAT and import duty levied on tea which he said were hindering the growth of the sector.

“Tea is one of our chief foreign exchange earners and we have to ensure that our farmers are comfortable and continue producing,” the President said.

He asked the Ministry of Agriculture, the Kenya Tea Development Agency and other key players in the sector to cushion farmers from unnecessary taxes and levies in order to help lower the cost of production and increase returns.

Production

After the State House meeting, KTDA announced it would pay farmers a mini-bonus by the end of this month at a rate to be determined by factory directors. The payout has been Sh5 per kilogramme of green leaf and is usually made in April.

The agency had said it would not pay in advance for crop deliveries because of low prices in the international tea market. Farmers, however, have been receiving the monthly pay of Sh14 per kilogramme.

The Kenya Tea Growers Association has said the current prices are below production charges and could significantly affect the industry.

Prices at the weekly auction fell to $2 (Sh174) per kilogramme last week, 17 per cent down from the prices at a similar period in 2013.

One of the interventions proposed by Agriculture Cabinet secretary Felix Koskei is to raise the excise duty charged on tea imports from 25 per cent to 100 per cent as charged by other tea producing countries outside the common markets to check excess importation of value added tea.

READ: Tea prices to remain low as summer approaches

Mr Koskei added that implementation of the proposed Sh3.6 billion Common User Facility (CUF) should encourage value addition to Kenyan tea, enabling it fetch higher prices on the international market.

Tea packers and exporters have also called for a review of taxes to boost exports. VAT is levied on all teas sourced outside the two- day auction, meaning that buyers who procure the commodity outside the auction period are faced with a 16 per cent VAT, claimable after export.

Tea packers, both for local and export, cannot buy the commodity from the zero rated auction under the Tea Act. They buy from producers or buyers with 16 per cent VAT.

“For this industry to remain sustainable and profitable, the government must urgently address the issues of taxation to promote exports or ask the producers to immediately slash down production,” said Global Tea & Commodities director Peter Kimanga in an opinion piece in the Business Daily last month.

The low prices due to overproduction had caused the cancellation of the mini-bonus normally paid to farmers by KTDA, although that has now been reinstated following Tuesday’s meeting.

The set up of a price stabilisation fund and barring low quality teas from the Kenya market are among proposals being discussed to ensure consistent returns for farmers.

Mr Kenyatta said transparency at the Mombasa tea auction would be enhanced through a proposed electronic tea exchange.