MUGWANG'A: Agriculture as investment is dead, more taxes will bury it

This government is always coming up with a new levy, tax or fund to introduce. Now it’s a 5 per cent tax on farm sales, not just profits.

In Summary
  • Introducing another tax on the value of agricultural produce is a regressive step that will undermine the already-struggling sector.
  • Another tax will increase production costs, reducing yields and profitability, pushing many smallholder farmers deeper into poverty.
Agriculture Cabinet Secretary Mithika Linturi inspects subsidized fertliser at the Voi depot in Taita Taveta on March 5, 2024.
FOOD SECURITY: Agriculture Cabinet Secretary Mithika Linturi inspects subsidized fertliser at the Voi depot in Taita Taveta on March 5, 2024.

It looks as though this government has decided that its only business is business. It is in the business of making money by all means necessary and no one and nothing is going to stop it. To the Government, it seems, it does not matter whether the cow it is milking dies from being milked too hard. It does not matter if the cow is not fed and dies from starvation. Let the cow die when it dies but as long as it is still alive, it has to be milked. It has to produce milk whether it has it or not.

But the appetite of this government for milk seems to be growing too much and now even the lamb and the bull are being beaten to produce milk! The chicken too must find ways of adding milk to their eggs if the trend we are seeing does not change.

A month hardly passes without a section of this government coming up with an idea of which new levy or which tax or which fund should be introduced. I think this the hardest-thinking government in the country’s history when it comes to ways of making money from both external and internal sources. This is happening even as the citizen is haemorrhaging from what looks like over- taxation. There is information the country is also on a borrowing spree from foreign institutions and countries.

But it is the recent decision to introduce another tax on farmers that exposes the administration’s suicidal appetite for more and more money! The Government’s money-making think tankers believe the already-struggling Kenyan farmers will, in just over two months, give the state five shillings for every one hundred they sell. Take note that it is not every Sh100 the farmer makes as profit, but every Sh100 he or she sells.

In January, Treasury published proposals for expanding the tax base among farmers, arguing this sector has not been paying its “fair share” of taxes. It set the new tax at 5 per cent of the value of the produce. The country thought this was a just a proposal but, looking at how things are going, it is a directive.

On Tuesday this week, the Kenya Revenue Service unveiled an electronic Tax Invoice Management System to ensure all businesses pay tax, including those in the informal sector, small businesses and farmers. This move aims to ensure farmers pay the 5 per cent proposed tax as soon as it becomes official by the beginning of the 2024-25 financial year.

There is danger in the continued tax appetite, grave danger in further taxing the Kenyan farmer.

Introducing another tax on the value of agricultural produce is a regressive step that will undoubtedly undermine the already-struggling agricultural sector. Agriculture, despite being the backbone of the Kenyan economy and a significant contributor to the GDP, faces numerous challenges. These include high input costs, inadequate infrastructure, unpredictable weather patterns, and now, burdensome taxation.

This additional tax burden is akin to adding insult to injury and could be the final blow for many farmers.

First and foremost, the imposition of yet another tax will further increase the cost of production. Already grappling with high prices of farm inputs due to existing taxation and import duties, farmers will find it increasingly difficult to afford essential inputs such as fertilisers, seeds, and machinery. This will inevitably lead to decreased yields and lower profitability, pushing many smallholder farmers deeper into poverty.

Moreover, the introduction the new tax on the value of agricultural produce will disincentivise investment in the sector. Investors, both local and foreign, will be wary of putting their money into an industry that is already characterised by low returns on investment. This lack of investment will hamper innovation, technological advancement, adoption of modern farming practices, perpetuating the cycle of low productivity and stagnation in the agricultural sector.

Furthermore, the taxation of agricultural produce will have ripple effects throughout the entire value chain. Increased production costs will be passed on to consumers in the form of higher food prices, exacerbating food insecurity and hitting the most vulnerable segments of society the hardest. Additionally, agro-processing industries, which rely on a steady and affordable supply of raw materials, will struggle to remain competitive in the face of rising input costs. This potentially will lead to job losses and economic downturns in rural areas.

It is crucial to recognise that agriculture is not just a means of livelihood for millions of Kenyans but also a vital sector ensuring food security, reducing poverty, and driving rural development. Instead of burdening farmers with additional taxes, the Government should focus on implementing policies that promote investment, enhance productivity, and improve market access for agricultural produce.

This could include measures such as providing subsidies for farm inputs, investing in rural infrastructure, facilitating access to credit and extension services, and promoting value addition and market linkages.

The imposition of the five shillings tax for every a Sh100 sale tax on the value of agricultural produce is a short-sighted and counterproductive move that will only undermine the sector's viability and sustainability. Rather than suffocating farmers with additional taxes, the government should prioritise supporting and incentivising agricultural development to unlock the sector's full potential as an engine of economic growth and poverty reduction.

Otherwise agriculture, as an investment sector, is dead.

Political commentator 

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