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Farmers to pay Sh5 for every Sh100 they make in tax plan

Mercy Wangechi plucking tea at her farm in Nyeri. [Kibata Kihu, Standard]

Farmers around the country will part with at least Sh5 for every Sh100 they make in new radical revenue-raising proposals by the Kenya Kwanza administration.

The President William Ruto administration reckons its newly published proposals for expanding the tax base among farmers are timely as according to it farmers have not been paying their fair share of taxes.

"The Government will introduce a withholding tax on agricultural produce which will be a final tax at a rate not more than 5 per cent of the value of the produce delivered to the cooperatives or other organised groups," says Treasury.

The latest tax proposal by the Ruto administration has rattled farmers and farm groups at a time when additional taxes imposed by the government are stoking tensions amid the high cost of living.

Smallholder tea farmers affiliated to the Kenya Tea Development Agency Limited (KTDA) for instance earned a total of Sh67.7 billion for the financial year ending June 30, 2023.

This included a bonus payout amounting to Sh44.15 billion and Sh23.55 billion as monthly pay for green leaf supplied to the 54 KTDA factories, bringing the total earnings to Sh67.7 billion for the financial year ending June 30, 2023.

Under the new farmers' levy, the government would have taken Sh3.38 billion (5 per cent) eating into the KTDA-affiliated tea farmers' meagre earnings.

The Uhuru-backed Brookside Dairy disclosed it paid Sh1 billion to farmers for milk deliveries in Mt Kenya last year. The taxman would have demanded Sh50 million as his pound of flesh under these Brookside payments, eating into farmers' earnings.

"How do you collect taxes on poor farmers and go to use lavishly on things like choppers," said Kipkorir Menjo a director at Kenya Farmers Association on the proposed tax. Mr Menjo said it would be ideal to support the fledgling agriculture sector to recover fully first before planning on more taxation.

With inflation driven by rising prices for food, energy, and other consumer goods remaining a major headache for consumers and the Ruto administration, farmers' groups and experts have instead called on the government to increase support to farmers.

"Such a tax would make Kenya's agricultural production less competitive compared to regional neighbours and eventually make the cost of final produce costlier than imports," said Dr Timothy Njagi, a food security expert and veteran development economist.

Ruto Government admits that farmers encounter unique challenges, including being weather dependent, perishability of the produce, the subsistence nature of the sector and inadequate tax literacy by the players of the sector which makes the taxation of this sector difficult.

It, however, reckons that the sector is highly informal, cash-based, and characterised by the notion that the incomes generated from the sector are meagre and should not be taxed.

According to the Treasury therefore there is a need to intensify taxpayer education to ensure that farmers understand their role "in nation building and the need to pay taxes."

"The Kenyan economy remains highly dependent on the agriculture sector, which contributed an average of 21.2 per cent of the GDP in 2022 and has the highest employment multiplier in the economy," says the National Treasury.

"Despite this, the sector's contribution to tax revenue is less than 3 percent indicating that the sector is under taxed."

Experts add there are numerous strategies available to the Kenya Kwanza government to end food insecurity.

These include increasing investment in agricultural research, revamp of extension systems and helping farmers leverage on technology to increase productivity and reduce production costs, according to Dr Njagi of Egerton University food security think tank Tegemeo Institute.

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