What the Public Should Know About Taxation in the Agricultural Sector

Public discourse around agriculture and taxation in Kenya is often emotive and, at times, misinformed. In villages, towns, and increasingly on digital platforms, government is frequently accused of imposing excessive taxes that allegedly stifle growth in the agricultural sector.

These claims often cite inspection and phytosanitary fees by the Kenya Plant Health Inspectorate Service (KEPHIS), county cess on produce movement, potential export levies, customs duties, and proposed taxes such as Value Added Tax (VAT) or withholding tax, with costs varying by transport mode and product type.

For farmers and agribusinesses eligible for VAT refunds, delays in processing have further fuelled frustration. Many believe that prolonged refund timelines and export-related charges have rendered Kenyan agricultural products uncompetitive in international markets.

However, several of these perceptions do not align with the current tax framework. A common misconception is that the high cost of food is driven by excessive taxation. In reality, basic foodstuffs are not subject to direct taxation, and subsistence farming is not taxed.

On the contrary, government policy has prioritised support to the sector through subsidies on fertiliser and access to inputs such as certified seeds, farm machinery, and mechanisation services.

Farmers with an annual turnover of less than KES 5 million are classified as small-scale and fall below the mandatory threshold for VAT registration and electronic tax invoicing. In addition, essential agricultural inputs—including fertiliser, pesticides, animal feeds, seeds, and selected farm machinery—are either zero-rated or VAT-exempt to encourage investment and productivity.

The introduction of the electronic Tax Invoice Management System (eTIMS) has raised concern among some farmers who fear it signals an expansion of the tax net. In practice, eTIMS is not designed to target smallholder farmers.

Rather, it provides a digital invoicing framework for businesses with larger turnovers and those operating within formal value chains.

Another persistent myth is the tendency to categorise all charges along the agricultural value chain as government taxes. In reality, many costs such as packaging fees, cooperative deductions, warehousing charges, market fees, and logistics costs, are imposed by county governments, co-operatives, or private service providers. When these are bundled together under the label of “taxation,” they distort public understanding and inflame resentment.

Eliminating taxes alone would not automatically make food affordable. Food prices are far more influenced by structural challenges including high transport costs, poor logistics, post-harvest losses, climate shocks, and fragmented markets.

Similarly, claims that Kenya’s agricultural exports are overtaxed completely ignore existing incentives. Tea, coffee, flowers, and horticultural exports benefit from zero-rated VAT, duty remission schemes, and investment deductions. Where competitiveness is undermined, the causes are more often global price volatility, high freight costs, and stringent compliance requirements in export markets rather than domestic taxation.

Recent amendments to Section 44A of the Tax Procedures Act through the Finance Act 2025, which require imported goods to be accompanied by a Certificate of Origin, have also been misunderstood. Traditionally, certificates of origin were primarily required to claim preferential duty rates. The expanded requirement aims to strengthen trade transparency and customs enforcement rather than introduce new taxes.

There is also confusion around statutory deductions such as the Affordable Housing Levy and National Social Security Fund (NSSF) contributions. These apply mainly to salaried employees and formal businesses and do not directly affect the majority of farmers who operate outside formal payroll systems.

Kenya needs sustainable revenue to fund agricultural research, extension services, rural infrastructure, and climate resilience. At the same time, taxation policy must avoid undermining the very sector that underpins food security and livelihoods for millions.

Protecting existing incentives, improving transparency around tax proposals, strengthening administrative efficiency, and keeping farmers’ voices central to policy formulation are essential steps toward a fair and functional agricultural tax framework.

Authored by Hilda Rutere, a communication specialist