Farmers Party faults Finance Bill proposals on fertilizer
The Farmers Party has opposed the move by the National Treasury to categorize fertilizer and pest control products as value added tax (VAT) exempt supplies which will lock suppliers of the products from claiming input tax.
The Finance Bill, 2023 has proposed to re-classify all inputs and raw materials supplied to manufacturers of agricultural pest control products, agricultural pest products and fertilisers containing either two of nitrogen, phosphorus or potassium from zero-rated to exempt VAT supplies.
The products are currently zero-rated, and the change in their categorization to tax exempt means suppliers of the products will not be able to claim millions of shillings in input tax from the Kenya Revenue Authority (KRA).
The Farmers Party, in a memorandum it has submitted to the National Assembly on the Bill, has opposed the proposal arguing that it will lead to an increase in the cost of farming inputs which will negatively affect the agricultural sector which has already been struggling in recent years due to drought.
Subsidized fertilizer
Transportation of sugarcane from farms to milling factories has also been moved from zero-rated status to the VAT exempt category, which means that sugarcane farmers will deducted more by millers for their cane deliveries.
“The proposed reclassification from zero-rated to exempt will have significant impacts on the agriculture sector and the economy at large. It will increase the cost of production for the suppliers hence passing the cost to farmers which will ultimately lead to an increase in the cost of food,” party leader Irungu Nyakera said.
Mr Nyakera said the proposed reclassification will also have an impact on the subsidized fertilizer programme as any input VAT incurred in supplying the fertilizer will become an additional cost to entities that are supplying the fertilizer to the government.
“Higher farm input costs including fertilizer would be a setback for a government fighting a myriad of challenges around food and nutritional security including a spike in inflation and the effects of a raging drought which had gripped the country for most of the past two years,” Mr Nyakera said.
High food costs
The agriculture sector has been struggling in recent years with low crop production leading to high food costs, which saw the sector’s contribution to the gross domestic product (GDP) drop to 21.2 per cent in 2022 down from 21.5 per cent in 2021.
In 2022, the sector’s performance went from negative 0.3 per cent in 2021 to negative 1.9 per cent, according to the Economic Survey 2023 released by the Kenya National bureau of Statistics (KNBS) last week.
During the release of the survey last week, Treasury Cabinet Secretary Prof Njuguna Ndung’u noted the role that agriculture played in slowing down the growth of the economy in 2022, saying there have been serious structural problems and hinted at tighter regulation.
According to the survey, estimated maize production decreased from 36.7 million bags in 2021 to 34.3 million bags in 2022. Similarly, tea production decreased from 537.8 thousand tonnes in 2021 to 535.0 thousand tonnes in 2022 on account of depressed rainfall in tea growing areas.
