Classifying Kenya as a food deficit country when agriculture is a major driver of the economy is a conundrum that should be solved sooner than later. It is perhaps this puzzle that drove the President to consider food and nutrition security among the government’s Big 4 Agenda announced at 54th celebration ceremony of Kenya’s independence.
The successful transition from a food deficit to a food surplus country is dependent on radical shifts in the government’s policy on agriculture. Whereas agriculture contributes immensely to Kenya’s GDP, the agriculture sector productivity has considerably declined in comparison to past decades.
According to the Kenya National Bureau of Statistics’ (KNBS) 2018 economic survey report, the sector recorded a decelerated growth of 1.6 per cent in 2017 compared to 5.1 per cent growth recorded in 2016.
The report further asserts that major agricultural commodities, including maize, wheat, tea, coffee and sugarcane declined in production in 2017 compared to 2016 with wheat production in particular, recording a decline of 23.1 per cent, while coffee, tea and marketed milk declined by 15.1 per cent, seven per cent and 17.4 per cent respectively. Industry players were forced into huge imports of maize and sugar to bridge the existing deficit at the time with the government forced to spend over Sh6 billion to subsidize the cost of maize flour and cushion the mwananchi.
The intent to achieve food security through the Government’s Big 4 Agenda is certainly a reason to shift our attitude towards agriculture, especially in respect favourable tax legislation and budgetary allocations for stakeholders in the agricultural sector. To begin with, on the 10 April, 2018 the government gazetted The Tax Laws (Amendment) Bill (2018) which seeks to reclassify certain goods and services from zero rated to exempt status.
Agricultural commodities targeted include milk and cream, fertilizers and agricultural equipment which are currently zero rated. What this means to consumers is that with these continuous reclassifications of goods in respect of VAT, prices of agricultural goods will perpetually remain high and un-affordable.
The impact of the reclassification of VAT on inputs such as fertilizer and agricultural equipment will have far reaching effect on farmers who will fill the pinch in the overall cost of inputs and equipment. While the government has an annual fertilizer subsidy, it has remained inadequate in that it covers a limited category of fertilizers and does not apply to other chemicals including pesticides.
Additionally, the government has commenced overhaul of the Income Tax Act by publishing the Income Tax Bill, 2018. The Bill seeks to reduce investment deduction enjoyed by investors who establish manufacturing plants of more than Sh200 million in municipalities outside of Mombasa, Nairobi and Kisumu to 100 per cent as opposed to 150 per cent being applied currently.
Though not directly affecting agricultural commodity production, the proposal in the bill has a roller coaster effect on availability of markets for agricultural commodities as the investors will not be incentivized enough to invest in municipalities outside of the three cities for reasons due to poor rural infrastructure (feeder roads, power).
This notwithstanding, the main aim of the Big four agenda is to couple manufacturing with agriculture to foster value addition and agro-processing a factor that maybe hampered by the new tax measures.
Like other East African countries, small scale farming in the Kenya experiences funding challenges. In 2014, African governments met in Malabo, Equatorial Guinea and renewed their pledge to spend 10 percent of their national budgets on agriculture. Sadly, Kenya’s Government Resource allocation to the sector has averaged below 5 per cent of its national annual expenditure. If the government is committed to the Big 4 Agenda on sustainable food security, then it must take a bold move and expand spending in the sector to reflect the Malabo Declaration. It is therefore critical to mobilize additional funding to the agricultural sector and align proposed tax legislation with the Big 4 Agenda. The road to double digit economic growth will be steep but achievable with sound government measures in the agricultural sector.
JAMES CHWANYA, Tax analyst, PKF Kenya.