Kenya will zero-rate tax on local tea to allow value addition of the commodity and discourage traders who re-import the beverage to avoid paying Value Added Tax.
Agriculture Cabinet Secretary Peter Munya said the move will allow more traders to do value addition locally, a move that will increase consumption of tea, whose growth has remained low over the years.
At the moment, a trader buying tea at the auction for local consumption is forced to pay 16 percent VAT after doing value addition, a move that has discouraged local purchases in order to avoid the cost.
“We are going to zero rate tax on tea that is value added locally so that to encourage our traders to buy the commodity at the auction and do value addition right here in the country,” said Mr Munya.
This is good news for tea stakeholders, who have for long urged the government to zero rate it as this will ultimately improve consumption because of lower cost in obtaining the beverage.
Kenya is the largest exporter of tea in the world, but only five percent of the total produced is consumed locally.
Traders who import value-added tea do not incur the VAT levy, hence making it cheaper for them to ship in instead of buying at the auction.
Some of the firms such as Kericho Gold and Ketepa do value addition for sale locally but this makes their tea relatively expensive, locking out would- be buyers.
Most of the countries that import Kenya’s tea normally buy it without having been value added in order to blend it with teas from other regions.
For instance, Pakistan which is a top buyer of the beverage procure more than half of the commodity in its original form as it was processed at the factories.
The government is putting up a common user facility at Dongo Kundu that will be used by all the stakeholders in value addition of the tea before it is exported.