The Kenya Tea Development Agency (KTDA) has warned that the minimum tax which has come into force will cost smallholder tea farmers Sh754 million annually in what could retract expected gains under the Tea Act 2018.
KTDA says the new tax which was introduced by the National Treasury under the Finance Act 2020 and took effect on 1st January 2020 will eat into smallholder tea farmers’ income and reduce their bonus significantly.
“To put this into perspective, the amount is higher by Kshs. 20 million the dividend that KTDA Holdings Limited recently declared to its shareholders – the 54 factory companies and by extension the smallholder farmers who own them – for the 2019/2020 Financial Year,” said Alfred Njagi, KTDA Management Services Managing Director.
The Treasury Cabinet Secretary (CS) Ukur Yatani had earlier indicated that the tax which will be applied at the rate of 1pc on monthly gross turnover will be used to ensure firms participate in development whether or not they make profits.
“The implication of this to KTDA-managed tea factories, using the last financial year’s audited accounts, is that they will be, on average, paying over Kshs. 62.8 million each month, in addition to the over 40 taxes and levies they are already remitting to various Government agencies,” Njagi added.
Agency managed factories recorded a Sh79.02 billion turnover for the year which ended 30th June, 2020 meaning the Kenya Revenue Authority (KRA) will be entitled to approximately Sh799 million.
Ngere Tea Factory in Murang’a County would remit the highest amount at Sh21.8 million annually, while Litein Tea Factory in Kericho would be the second-highest remitter with Sh19.6 million.
Chebut, Makomboki and Momul Tea Factories would all be paying over Sh18 million annually while Kimunye and Mununga Tea Factories would be remitting over Sh17 million each, the agency said.
Only sixteen of the 69 factories that are managed by KTDA would be paying less than Sh10 million every year.
“With the tea sub-sector’s focus being the enhancement of the socio-economic welfare of the smallholder tea farmer, the new tax will erode farmers’ earnings and could therefore prove to be counterproductive to the cause. Consideration should be made to exempt smallholder tea farmers from this tax to protect their earnings, in line with the government directive of putting more money into farmers’ pockets,” said Njagi.
Kenyan Business Feed is the top Kenyan Business Blog. We share news from Kenya and across the region. To contact us with any alert, please email us to [email protected]