Horticulture companies are grappling with a Sh12 billion backlog in tax refunds that have accrued in the last three years, which they say is hurting their operation and expansion plans.
Most affected is the multibillion-shilling flower sector which is dealing with higher taxation, a spike in prices of farm inputs, high water tariffs as well as logistical difficulties and additional operational costs that threaten to bring it down.
The floriculture industry, a key foreign exchange earner, further faces other challenges that include; rising labour wages, skyrocketing electricity bills and high freight charges.
The Kenya Flower Council (KFC) Chief Executive Clement Tulezi argued the delayed refund has greatly affected the operations of farmers across the country, including Naivasha-Kenya's floriculture heartland and home to leading flower firms.
“The government owes us over Sh12 billion in VAT (Value Added Tax) refunds... The government should prioritise tax refunds to the flower farmers to enable them to meet their financial obligations,” said Mr Tulezi.
The official revealed that the lobby has unsuccessfully engaged the Kenya Revenue Authority (KRA) on the issue, as well as about effecting tax cuts for the industry.
Also pushing for the refunds is the Agricultural Employers Association (AEA).
“The flower sector is facing double taxation and high power charges. The Sh12 billion Value Added Tax refunds are just adding the pain,” said Richard McConnell, a flower firm owner.
During a recent Horticulture Trade Fair, Agriculture Cabinet Secretary Mithika Linturi assured investors in the flower sector that KRA was looking into the issue.
“KRA is looking into the issue on an individual basis and the impasse will be resolved soon,” stated Mr Linturi.
In 2020, amid the grip of Covid-19, KRA paid flower farms about Sh7 billion in tax refunds, from the Sh10 billion they demanded to keep them afloat.
The refunds helped to cushion farmers from the ripple effect of the pandemic.
The Finance Act 2023 amended Section 47 of the Tax Procedures Act of 2015, which currently provides that the KRA shall repay any overpaid tax within two years from the date of application.
Three years after the Covid-19 pandemic nearly stalled flower exports and made prices in the European Union markets highly unpredictable, most flower firms are struggling to stay afloat.
Besides the refunds, the recent increase in water charges from Sh0.5 to between Sh2 and Sh6 for irrigation and commercial use and an increase in National Social Security Fund (NSSF) contributions from Sh200 to Sh1,080 on the employers’ side are also threatening to uproot the flower firms.
“Water charges have risen from the previous 50 cents to Sh6 and flower firms being heavy users of water, this increase compounds the existing situation in the sub-sector. The energy cost is also expected to increase soon,” said Mr Tulezi.
"Flower firms are struggling and facing a bleak future. The business environment in the country has forced some of our members to close shop, while others have scaled down and changed their nature of operations," revealed Mr Tulezi.
As a result, KFC said Kenya’s flower exports had over time dropped by 15,000 tonnes, from about 210,000 tonnes.
Kenya's flower exports hit Sh108.7 billion shillings in 2020 compared to Sh951 million in 2019.
Kenya’s horticulture sector earned the country Sh154 billion in 2021, with flowers alone bringing in Sh110 billion.
According to Mr Tulezi, to beat high electricity costs, some of the flower firms had resorted to the use of solar energy.
“Most have been coughing up to Sh10 million per month for electricity,” he said.
According to Mr Tulezi, to save the sector the government should among other things zero rate farm inputs like fertiliser and eliminate some ‘punitive’ taxes.
The Business Daily established that flower produces are currently taxed at the county and national levels, a matter which KFC said amounts to double taxation.
