Farm inputs tax will ruin agriculture, experts say

 

 

Kenya’s food security is set to worsen amid high costs of agricultural production following the Government’s move to tax the once exempt farm implements.

In measures meant to raise revenue, Treasury has in the Tax Laws (Amendment) Act, 2020 imposed a 14 per cent Value Added Tax (VAT) on farm implements.

The implements include equipment such as ploughs, harrows, planters, sprayers, harvesters and balers.

The farm implements not only lower the cost of production for large-scale farmers, but also increase harvest yields. 

The new tax measures come at a time when farmers are reeling from devastating effect of floods, locust attacks, low prices for their produce and the Covid-19 pandemic.

Timothy Njagi, a senior research fellow with Tegemeo Institute, said in an interview that he has struggled to understand the objectives of the proposals.

He warned of adverse effects to the agricultural sector if the measures sail through.

Agriculture contributes 26 per cent to Kenya’s economy.

It also contributes another 27 per cent through indirect linkages and employs almost half of the population, data from the global Food Authority Organisation (FAO) shows.

“Agriculture is a major driver of the country’s economy, we understand they want to raise revenue but some of these proposals are counterproductive and if they go through, it will be a nightmare for the country,” said Dr Njagi.

Expensive labour

He added that farms especially in the rural areas needed the machinery due to the expensive labour and lack of enough man power.

“Relying on manpower sets back agricultural production by weeks. Mechanisation is much cheaper,” he said.

This is not the first time Treasury is imposing taxes on inputs to agriculture. The government imposed a 16 per cent tax on pesticides in the last financial year and was projected to skyrocket food prices.

Farmers are also plagued with high cost of seeds, fertiliser and pesticides. Farm implements are classified as goods under plant and machinery category in Chapter 84 and 85 of the VAT Act 2013.

According to the act, they were classified as exempt goods in order to boost food production. Observers also say the move is a blow to food security – a key pillar in President Uhuru Kenyatta’s Big Four Agenda.

Njagi added that the tax on the farm implements would eventually trickle down to consumers with the price of food going up.

Fergus Robley, the Managing Director of Farm Machine Distributors (FMD), said that the 14 per cent tax was a considerable amount that would see many farmers step back.

He warned that food production would go down and also farmers would now be tempted to buy cheap substandard machinery.

“Through mechanisation of agriculture, yields can even increase three times. However, the tax has added a 14 per cent burden on farmers, hampering their ability to purchase implements. Banks also don’t finance VAT,” he said.

Mr Robley added that in the case of a food shortage, it would be hard to import food owing to the Covid-19 pandemic. He warned that the 14 per cent Value Added Tax would soon come back to haunt the country. “Food production should be protected for the sake of Kenyans,” he said.

Critics have also hit at the decision to place farm implements in the same tax category as industrial machinery.

Robley described it as an ‘oversight’ that came as a shocker. He said that it would heavily hit dealers of farm implements in the country.

“Many farmers cancelled orders following the increase in tax,” he said.