The Kenya Tea Development Agency estimates that the minimum tax which has come into force will cost smallholder tea farmers Kes. 754M every year in what could retract expected gains under the Tea Act 2018.
The agency has said the tax which was introduced by the National Treasury under the Finance Act 2020 and took effect on 1st January 2020 will eat into smallholder tea farmers’ income and reduce their bonus.
“To put this into perspective, the amount is higher by Kes. 20 million the dividend that KTDA Holdings Limited recently declared to its shareholders – the 54 factory companies and by extension the smallholder farmers who own them – for the 2019/2020 Financial Year,” said Alfred Njagi, KTDA Management Services Managing Director.
Treasury Cabinet Secretary Ukur Yatani earlier indicated that the tax which is applied at the rate of 1% on monthly gross turnover is meant to ensure firms participate in development whether or not they make profits.
“The implication of this to KTDA-managed tea factories, using the last financial year’s audited accounts, is that they will be, on average, paying over Kes. 62.8 million each month, in addition to the over 40 taxes and levies they are already remitting to various Government agencies,” Njagi added.
KTDA-managed factories recorded a Kes. 79.02B turnover for the year which ended 30TH June, 2020 meaning the Kenya Revenue Authority will be entitled to Kes. 799 million.
Ngere Tea Factory in Murang’a County would remit the highest amount at Kes. 21.8 million annually, while Litein Tea Factory in Kericho would be the second-highest remitter with Kes. 19.6M.
Chebut, Makomboki and Momul Tea Factories would all be paying over Kes. 18 million annually while Kimunye and Mununga Tea Factories would be remitting over Kes. 17 million each, the agency said.
Only sixteen of the 69 factories that are managed by KTDA would be paying less than Kes. 10M every year.
“With the tea sub-sector’s focus being the enhancement of the socio-economic welfare of the smallholder tea farmer, the new tax will erode farmers’ earnings and could therefore prove to be counterproductive to the cause. Consideration should be made to exempt smallholder tea farmers from this tax to protect their earnings, in line with the government directive of putting more money to farmers’ pockets,” said Njagi.