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The recent decision by the Finance Minister to impose a standardized 16 per cent tax on most zero-rated agricultural inputs, products and foods has been met with stiff resistance by farmer associations.The farmers say introducing tax on these commodities will translate into higher costs of production and higher food prices, exacerbating food insecurity and damaging export earnings by making local products uncompetitive in international markets.
Some of the items that the Minister hopes to tax in the VAT Bill include fertiliser, livestock feeds, insecticides and pesticides, maize and wheat, milk and cream, locally assembled water pumps and locally produced gin cotton.
“The purpose of the bill is to review and update the existing law relating to VAT. The Kenyan agricultural producers and stakeholders are of the view that this must not be undertaken at the expense of food security and agricultural productivity in the country,”said Nduati Kariuki the agricultural sector board chairman at the Kenya Private Sector Alliance (KEPSA)
Farmers now fear that removing fertilizers from the list of zero-rated goods will increase the price of the commodity, increasing farmers’ costs of production beyond the means of smallholders, the majority of who rely on agriculture for their income.
The removal of milk and cream from the list of zero rated goods will likewise disincentivise milk processing companies, and lead to milk price increases that will depress the milk market for smallhold milk producers.
As a further lockout, the removal of locally assembled water pumps will lead to price increases beyond the affordability of smallholders, said Rispa Tendwa an agricultural economist from the University of Nairobi College of Agriculture.
This will inhibit the expansion of irrigation using low cost irrigation technologies that are vital for the production of high value crops, for instance in greenhouses. “Government has set up a huge fund to encourage irrigation as one of the drivers of Vision 2030 through new age farming. Then it goes ahead to increase the price of the pumps that the farmers will need. How will we even achieve that,”she asked.
Currently food items are exempted from VAT, while agricultural inputs are zero-rated.
While producers of exempt goods or services neither charge nor reclaim VAT, producers of zero-rated items are entitled to recover VAT on their costs.
The introduction of the standardised VAT, say experts, will now fall heavily on consumers, who will bear multiple charges along the value chains, including for grain transport.
The IMF has favoured the new taxes, with IMF Assistant Director for Africa Dominico Fanniza, in an agricultural forum, recently asking Parliament to scrap all the exemptions in VAT to promote equitable sharing of tax burden.
But David Nyameino, an agricultural economist, said the proposed reforms risked leaving Kenya as the only place in the world where farmers get punished for producing.
Photo Courtesy of africareview.com
