advertisement
Ideas & Debate

Tax incentives that can boost farmers’ yields

 milk
A growing urban population in Kenya has led to the increased demand of milk. FILE PHOTO | NMG 

Agriculture is the bulwark of Kenya’s economy, contributing 34.2 percent of the Gross Domestic Product (GDP) and 15.3 percent of jobs in the private sector.

As part of the Big Four Agenda, the government has aligned its policies under the agricultural sector towards increasing food production, boosting smallholder productivity and reducing the cost of food.

In tandem with the economic transformation agendas proposed by the government, it becomes apparent that any of the proposed tax measures ought to be favourable and integral to the agricultural sector. Some of the areas that the government needs to focus on include, but EW not limited to storage facilities, preservation and funding accessibility for farmers.

The issue of the purchase price of grains has been a sensitive one and a thorn in the flesh for farmers who cry of prices incommensurate to the investments made. Notably, whenever there is a bumper harvest, a lot of produce goes to waste or is sold at a throw away price to willing buyers or to the National Cereals Produce Board (NCPB).

The lack of grain storage facilities leaves the farmers in a precarious and desperate situation easily disposing their produce at any available price. In a bid to provide remedy to the storage facility issue, in 2017, the government exempted materials used in the construction of grain storage facilities from VAT.

advertisement

However, to enjoy this exemption, one has to seek a recommendation from Agriculture Cabinet Secretary. Therefore, a farmer who wishes to construct a granary or a grain storage facility would have to seek a recommendation from the CS. On a normal day, farmers would not see the essence of investing in such facilities and hence would not be obligated to approach the CS seeking a recommendation for exemption from VAT.

While the exemption from VAT is anchored on good will and intentions, there is more to be done to encourage the uptake of investments in storage facilities that can benefit farmers.

To encourage such investments, we would implore the government to offer reduced corporation tax rates to investors constructing storage facilities whose capacity is more than 100,000 bags of grains. In addition, they should offer such investors capital allowances to the extent that the investments relate to grain storage facilities.

Further, the storage facilities fee charged by such service providers with respect to grain storage should be zero-rated and the fee should be regulated by the government to ensure that farmers are not exploited. As such, a farmer can easily deposit their produce with a storage facility and dispose it a later date or preserve it for consumption at a later date at a fee convenient to them and free of manipulation.

A growing urban population in Kenya has led to the increased demand of milk. In an interesting turn of events early this year, the Kenya Dairy Board published new regulations that proposed to illegalise the sale of raw milk in the country.

The proposed rules would increase the liabilities of registrations and licensing for anyone who wishes to engage in the trade. In essence, the farmers would be required to have pasteurisers or coolers.

Coolers and pasteurisers are capital intensive leaving farmers at the mercy of established milk processors. To come to the aid of farmers, the government should come up with tax incentives that would spur growth and encourage competition in the dairy sector.

Such tax incentives would include capital allowances to investors setting up coolers and pasteurisers in rural areas provided that they buy their milk from the locals.

Lastly, the government can empower its people by providing funding and improving accessibility to financing.

The Agricultural Finance Corporation of Kenya’s, (AFC) role in the economy needs to be demystified and its effect ought to be felt at the lowest level. Most farmers have little or no knowledge about the institution and the services offered.

The transformation agenda on food security is achievable and not far from reach especially with the right tax policies and people in place.

Ultimately, we need to become cognizant of our weak areas and address them adequately with the right fiscal policies and mindset.

It is no secret that the legislature needs to be well-advised on such a noble and great initiative.

The writer is Tax Consultant, PKF Kenya.

advertisement