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Tea farmers to lose over Kes754Million in new tax plan

There are around 650,000 small-scale tea farmers in Kenya. Climate change effects such as rising temperatures, droughts, frosts, shifting and unpredictable weather patterns as well as changes in pests and diseases threaten tea production.

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Smallholder tea farmers under Kenya Tea Development Agency (KTDA) will lose over Sh 754 Million every year when the newly introduced Minimum Tax which came to force on the 1st of January 2021.

As a result, the move is expected to eat into smallholder tea farmers’ income and reduce their take-home package earned from their green leaf sales.

The Sh754millon is higher than the Sh 20 million the dividend the tea agency recently declared to its shareholders – the 54 factory companies and smallholder farmers who own them in its 2019/2020 Financial Year.

The tax, which was introduced through the Finance Act of 2020, will see companies remitting one percent of their gross turnover every month to the taxman, and will be applied indiscriminately to firms whether or not they have posted a profit over the period.

Further, entities will be forced to remit the Minimum Tax if it is higher than Instalment Tax – which is payable by companies with no tax losses.

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.

KTDA-managed factories recorded a Sh79.02 billion turnover for the year which ended June 30, 2020 and would need to remit over Sh 799 million with the new tax regime.

Ngere Tea Factory in Murang’a County would remit the highest amount at KShs 21.8 million annually, while Litein Tea Factory in Kericho would be the second-highest remitter at KShs 19.6 million. Chebut, Makomboki and Momul Tea Factories would all be paying over KShs 18 million annually while Kimunye and Mununga Tea Factories would be remitting over KShs 17 million each. Only sixteen of the 69 factories that are managed by KTDA would be paying less than KShs 10 million annually.

“With the tea sub-sector 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 to farmers’ pockets,” says Alfred Njagi, KTDA Management Services Managing Director.

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