Farmers reject VAT bill proposals on zero rating

Farmers' representatives are angered by the proposed changes to the Value Added Tax bill removing a large number of agricultural inputs and produce from the list of zero rated items. The proposals were contained in finance Minister Francis  Githae's budget released mid last month. Farmers, agricultural producers and traders in agricultural sector said the proposals if passed will mean standard 16 per cent tax on the critical items, translating to higher costs of production, food insecurity and increased poverty.

According to Nduati Kariuki, the chairman of Kenya National Federation of Agriculture Producers, taxing the inputs will make Kenyan goods uncompetitive in the global markets, increase inflation locally, and effectively cause depreciation of the shilling which in turn will mean expensive petroleum costs spreading the adverse effects to all sectors of the economy.“Simply put, there should be no tax on agriculture inputs. We do not mind which language is used whether it is zero rating or exemption, but we want a law that protects the tax free status so that we are not left at the mercy of a minister who may from time to time confuse investors with arbitrary changes,” Kariuki said.

Among the inputs and products removed from the zero rated list are fertilizer, insecticides, pesticides, livestock Feed, locally assembled water pumps, as well as Locally produced and ginned cotton, maize, wheat and milk. “Infact the proposals defeat the whole purpose of vision 2030 initiatives including promotion of irrigation agriculture if tax is imposed on locally assembled water pumps, which are cheaper than imported machines,” said Gerald Masila, the Chief Executive of Eastern Africa Grain Council.

He said the bill should be amended to remove any clause that tax agricultural inputs and food items, and if it goes to parliament in its current form, then members of Parliament should reject it. The farmers fear that if the items and goods are classified as those that qualify for tax exemption by the minister, it will create uncertainty because the same minister can reverse the exemptions eroding the confidence of investors in capital intensive long term farming activities.    "The finance minister should not punish us for inefficiencies at the Kenya Revenue Authority that are the cause of problems with tax refunds arising from the zero rating arrangement," said Masila. "He should instead let the tax collector streamline the systems without eroding the benefits of not taxing farmers using the critical inputs".