By Ally Jamah

Manufacturers, importers, and distributors in the Sh8 billion agrochemical industry plan to lobby MPs to reject plans by the ministry of Finance to levy Value Added Tax (VAT) on agricultural inputs.

Members of the Agrochemical Association of Kenya said that the VAT Bill 2012 before Parliament is a direct threat to food security and the agricultural industry. They say it will result in a dramatic increase in prices of inputs, such as agrochemicals, fertilisers, and equipment.

“We are confident MPs will see how negatively the Bill will affect the agricultural sector. The agrochemical industry will see loses as high as Sh1 billion due the taxes. The losses in the agriculture sector is unthinkable,” said AAK Chairman, Kuria Gatonye on Tuesday.

He clarified that AAK appreciates the Government’s need to increase its tax revenues to finance development, but said targeting the fragile agricultural sector would undermine the economy.

Reverse move

“The idea to zero-rate agricultural inputs was to allow more farmers to use them to boost production. The Ministry of Finance seems to have forgotten that. We urge them to reverse their move,” he said.

He explained that agricultural inputs currently make up 30 per cent of costs of production, and the VAT move will increase further, pushing some farmers and agrochemical traders into bankruptcy.

“It is unlikely that the suppliers will absorb the new taxes and will pass it to farmers who can ill-afford higher prices,” he added

AAK  chairlady in charge of  training, Alice Mwikali, said the Government should be thinking of subsidising agricultural inputs to boost production.

 

 instead of bringing the industry to its knees through additional taxes.

“Most of exporters in Kenya are small-scale farmers who import their inputs. The taxes amount to cutting their feet since many of them may end up closing business. The costs of production would be too prohibitive,” she warned.

Gatonye said that use of fertilisers and agrochemicals is still low in Kenya since many farmers cannot afford them. And increasing the prices further would only lead to locking out even more farmers. And this, he said, would have a net effect of depressing the agricultural production in the country.

AAK is the umbrella organisation of manufacturers, distributors and users of agricultural inputs and specifically for the control of pests and animals. It has a membership of 83 organisations and individuals, including international and international producers.

CEO of Croplife Kenya Richard Sikulu said imposing VAT on agrochemicals and other inputs would be going against the historical trend in which the agricultural inputs were zero-rated.

Recently, the Kenya Private Sector Alliance (Kepsa) voiced strong opposition addng VAT on agricultural inputs saying it would inevitably lead to steep hikes in the prices of food and agricultural production and threaten food security