Exempt agriculture inputs and operations from proposed taxes

Dr Bimal Kantaria, Chairman, Agriculture Sector Network - The Tax Bill in its current form will have negative consequences

Narobi, April 21, 2020 Players in the agriculture sector are dismayed with new tax measures in the proposed Tax Laws (Amendment) Bill, 2020 saying this will add unbearable burdens to an already fledgling sector that is bearing the brunt of the Corona virus pandemic, a locust invasion and floods.

The Council of Governors Chair, Agriculture Committee Muthomi Njuki says they have written to the Treasury requesting for consideration to zero-rate agriculture and exempt all inputs from taxation, a position that has been adopted by leading sector representatives.

In its submissions to the Clerk of the National Assembly, Kenya Flower Council CEO, Clement Tulezi expresses the 100-member organization concerns that the timing of the Tax Bill is ill-informed coming at a time many farms are staring at possible closures while those that survive will need a long time to recover from the shutting down of international flower markers, disruption of supply chains and losses running into billions of shillings.

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Mr Tulezi specifically takes note of the non-inclusion of President Uhuru Kenyatta measures announced on March 25 to reduce corporation tax from 25 to 30 per cent. In addition, he chides that despite the President directing the taxman to expedite the flower industry VAT refunds estimated at Ksh 10 billion to free the badly needed cash to growers, this is yet to be executed. The President announced release of VAT refunds or allow outstanding VAT refunds to be offset against VAT withheld by appointed Withholding VAT Agents but, says Mr Tulezi, the Tax Bill does not provide any guidelines and timelines for the refunds.

He further questions the urgency to hurry the Tax Bill for discussion without giving growers adequate time to forward their views at a time the Corvid 19 pandemic has totally grounded operations leading to destruction of billions worth of flowers and employee redundancies
“COVID 19 pandemic has resulted in deep economic setback to the flower Farms with closure of its key export markets. This has crippled the businesses to virtual shutdown in a very short time frame”, he says in the council submissions.

“Following the President’s address on 25 March 2020 where he acknowledged the urgent need to make targeted state interventions to mitigate the economic shocks arising from the impact of COVID 19 pandemic, our members were looking forward to the Tax Bill that would support the measures announced by the Head of State in his speech.

“The Tax Bill in its current form will have negative consequences opposite to the intention that President had offered during his address”, said Chairman of the Agriculture Sector Network, Bimal Kantaria.

“The Tax Bill has introduced new measures (not covered in President’s Speech on 25 March 2020) that have far reaching negative consequences in general and for the Flower Farm sector specifically. This Tax Bill should have focused on COVID19 measures announced by the President and its operationalization through legislation”, the KFC memoranda says adding, “ Our members have been burning midnight lamps to curve out maps for business survival and continuity and the measures have come as additional dis-appointments to their business plans”.
Further, the Tax Bill proposes to remove the exemption on VAT on fertilizer and inputs for manufacture of pesticides and make them Vatable at 14 percent.

“This impacts the sector adversely due to ongoing cashflow crises and by adding further to the cash lock’, adds Chairman of the Agriculture Sector Network, Bimal Kantaria.
Mr Kantaria added that the Tax Bill proposal to remove the Zero-rating of VAT on Agricultural Pest Control Products and make them vatable has remained contentious last three years and efefcting them now would be catastrophic as it would incraese costs of inputs at a time farmers need to be supported to grow food as the world fights the Corvid-19 pandemic.

Said Mr Kantaria, “We are in a crisis brought on by locusts invasion on top of flooding and Corvid-19, this measure has a significant negative impact on the farmers”.

The Fertilizer Association of Kenya Chairman Eustace Muriuki says fertilizers as a critical farm input have never been subjected to VAT. “It will be difficult for farmers to access this vital input which will lead to decreased yields and impact negatively on food production”, he said adding, “It is prudent to note that at this point in time when the corona virus disease (COVID-19) pandemic has impacted negatively on global economies and food security worldwide, each country will have to depend on the farmers to produce food for the general population.
Getting food to import into the country will not be easy or if found will be expensive and unaffordable to the general population.”

Since 2009, the government has been importing fertilizers and subsidizing the same by almost 50% in order to encourage fertilizer usage by small holder farmers for the purpose of increasing crop production and productivity.

“We pray that fertilizers remains zero-rated enable farmer’s access farm inputs at affordable prices”. Mr Muriuki said.

Another bone of contention, according to the Kenya Flower Council is the removal of the VAT exemption on Transfer of a Business as a going concern and make it vatable at 14%.

“Considering the long business recovery phase from the impact of COVID 19 estimated currently, many businesses would be looking for business consolidation as an austerity measure for business survival and continuity”, said Mr Tulezi.

ASNET says that the removal of the exemption has a significant negative impact on business recovery plans as business consolidation measures would require massive upfront cash outlays which can only be recovered subsequently as input VAT over an extended period.

Set for taxation are inputs or raw materials locally purchased or imported by manufacturers of agricultural machinery and implements, specialized equipment for the development and generation of solar energy and tractors among other agriculture materials.
“We suggest that these items be moved to back to VAT exempt status instead of the proposed 14% standard rate”, said Mr Kantaria


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