Ruto's tax nightmare

President William Ruto. [File, Standard]

As the government seeks to increase its tax base to fund the Sh4.2 trillion budget, Deputy President Rigathi Gachagua finds himself in a difficult position. His supporters, who are upset by a new tax regime, are calling for his intervention.

The source of Gachagua’s predicament is Section 23 A of the Finance Act, 2023, which introduced the Electronic Tax Invoice Management System (E-TIMS). This has proven to be a major issue for many small-scale traders and farmers in Central Kenya, particularly those growing avocados, who claim they are unfamiliar with E-TIMS and want nothing to do with it.

Small and micro-enterprises traders in Nairobi are also protesting, claiming they believed the hustler anthem was genuine, only to be hit with numerous taxes that are hurting their businesses. The increase in import duty by the Kenya Revenue Authority (KRA) to importers, who mainly operate in Nairobi’s Nyamakima, Gikomba, River Road, and Dubois, and the creation of other taxes by government agencies, have led the traders to call for protests against the government starting today.

Gachagua managed to placate the protesters by waiving the extra taxes last Thursday, preventing what could have been the first street demonstration against the hustler government by traders who had supported it in the 2022 presidential campaigns.

Last week, Gachagua chaired a stakeholders meeting at his residence, bringing together KRA Chairman Antony Mwaura and the Commissioner General Humphrey Watanga, the Anti-counterfeit Agency Chairperson Joseph Kabeabea and the Chief Executive Officer Mbugua Njoroge, Trade and Cooperative Ministries Principal Secretaries Alfred Ombudo and Susan Mangeni (MSMEs). The meeting resulted in the import duty reverting to Sh2.5 million per a 40-foot container, as opposed to the new tariffs of Sh3 million.

“The Kenya Kwanza administration is a listening government. From the April 10 meeting, we will also be holding monthly meetings for six months to ensure all the traders’ complaints have been addressed in efforts to solve the issues in short term, midterm and long term measures,” the Deputy President said in a phone interview.

Yesterday, as the deadline for avocado farmers to register with KRA for E-TIMS lapsed, the government was forced to pass the burden to the aggregators. A stakeholders’ forum resolved to shift the burden of registration from farmers to aggregators.

This means promises made in earlier consultative meetings chaired by Gachagua for a review of the legislation contained in Section 23 A of the Finance Act have been abandoned.

The Standard has established that the stakeholders’ forum, chaired by Cabinet Secretary for Cooperatives, Micro, Small and Medium Enterprises Simon Chelugui, with its membership drawn from KRA, avocado aggregators, farmers, and exporters, further agreed to defer the implementation of the legislation for one month to allow for the sensitisation of aggregators, farmers, and exporters.

KRA had directed all farmers and other businesses to register on the new system and transmit invoices electronically by yesterday, March 31. Those who did not comply risked being barred from transacting due to their inability to submit their digital invoices to the taxman.

Following the new development arising from the stakeholders’ forum, the legislation will be implemented in May this year.

According to Chelugui, the select stakeholders abandoned calls to review and scrap the requirement after realising the requirement “was not a tax and its purpose was to safeguard farmers from unscrupulous traders”.

“E-TIMS is not a tax but a way of identifying and recording information of farmers so we need to know which farmer is producing how many tons of avocados and how the process is flowing for the purpose of protecting farmers from exploitation,” Chelugui said in an interview with The Standard.

He said aggregators will take data from the farmers who take their produce to them, a move he said will exempt the primary growers so that they can concentrate on farming, reiterating that they will only be taxed in the case of value addition and packaging.

“They (aggregators) are ready and willing to pay taxes but wanted the farmers to be exempted from the burden due to the challenges such as lack of technical know-how and awareness on their respective obligations espoused by the Finance Act,” the Cabinet Secretary said.

He explained that farmers who refuse to comply with the resolutions will be disadvantaged because the aggregators will not accept their produce as that would jeopardise the intentions of the legislation in promoting fair distribution of income and correcting the market of the avocado sub-sector.

“Those who do not comply will have their fruits abandoned by the aggregators, because the aggregator might end up paying taxes for products he did not pick and he will need to account how many tons of avocados he picked and from who and any value addition and which exporter he sold the produce to. We want fair distribution of income from the farmers to the aggregators as we correct the market and help in traceability because people will be defining where the avocado came from and if there is a mess, we may even know from which farmers,” said Chelugui.

As a result of the legislation, stakeholders had expressed fears the sub-sector would collapse after growers refused to sell their produce while those who agreed, sold to oil processors who in turn bought the produce at a throwaway price of Sh8 shilling per kilogram, instead of Sh70 per a kilo. On average a kilo has about four fruits meaning once the new rates kick in, the government will be reaping about Sh3.50 for every kilo of avocado sold or Sh0.855 for every fruit sold.

According to 2023 statistics from the Horticultural and Crops Directorate, Kenya earned Sh19 billion last year from the sale of avocado against a national production of 518,500 metric tonnes harvested from 29,150 hectares.

Exporters had also reported that as a result of the confusion, their containers for export had reduced from 350 to 300 while they expressed optimism that with the arrangement, the market would resume heavily.

“We feel there is goodwill after our meeting last week and we hope that with the involvement of stakeholders in the sub-sector, the value chain will embark on doing their best to maintain our position in quality production,” Samson Mureithi, the chairperson of Exporters Association said.

However, the Avocado Aggregators Association of Kenya Secretary Sharon Wanjiku said they were looking forward to more engagements with government agencies to understand how much the aggregators will be parting away with to the taxman even as she contended that they will pass over the same to the primary producers.

“We are willing to pay the taxes but we need a more comprehensive agreement to understand how much we shall pay but of course this goes without saying that this will affect how we buy the same from the farmers,” she said.

According to Wanjiku, the government had done little in the avocado sub-sector leaving the aggregators to guide farmers on the best management practices, a move she said necessitates their resolve to negotiate with its agencies on areas of partnership especially in conducting farmers’ trainings, among other areas saying they will be meeting again in the middle of this week.

The impasse brought about by the legislation has been raging since February when farmers and their representatives in the National Assembly chased away the KRA officers who had gone to create awareness to farmers on how they were supposed to board in the E-tims leading to the stakeholders’ consultative forum at Deputy President Rigathi Gachagua’s official residence on March 19. This later led to the formation of a select group that came up with the resolutions on Thursday last week.