Farmers Review Africa Nov-Dec 2018 Farmers Review November-December 2018-6 | Page 10

NEWS Kenya’s Crop Protection Industry Fears ‘Dire Consequences’ of New Pesticides Tax (AAK), the industry met Members of Parliament and lobbied for the review of the Tax Law (Amendment) Act 2018 in which agricultural pest control products have been deleted among products that do not attract 16% VAT. “The new tax measure will increase the cost of agricultural production for the resource-poor farmers because VAT is a pass-on tax,” AAK CEO Evelyn Lusenaka says. She adds that with fertilizers, insecticides, and pesticides accounting for as much as 50% of production cost, increasing prices will further squeeze the margins of farmers, ultimately making agriculture unattractive. T he agrichemicals industry in Kenya is up in arms over a decision by the government to impose a 16% value-added tax (VAT) on crop protection products. In a move that has stunned the industry, the government has removed pesticides from the category of products exempted from VAT and backdated the effective date to July 1, a development that has ignited fury and opposition from formulators and importers. Effectively, it means the retail cost of pesticides is bound to increase by at least 16%, something the industry reckons will make pesticides unaffordable to farmers and trigger spiral effects not only in food production but also in the survival of companies. “The immediate impact is decline in demand because farmers may no longer be able to afford to buy the inputs, and food production might decrease. If farmers buy the products, then the cost of food will definitely increase. This is a very bad decision,” 8 |November - December 2018 says Eric Bureau, Bayer Managing Director and Country Head East Africa. By imposing the new tax, the government has bowed to pressure from the International Monetary Fund (IMF). However, the industry has vowed to fight for its repeal on the basis that it has the potential to wipe out investments and expose the country to food insecurity. In recent times IMF has been exerting pressure on Kenya to undertake fiscal reforms that include doing away with tax exemptions to increase domestic revenue collections, reduce budget deficits, and slow public debt pile up. While pesticides, which for years have been exempted and zero-rated, have become targeted products, the agrichemicals industry is pushing for the repeal of the law, which has already taken effect to safeguard investments and ensure products remain affordable to farmers. Under the auspices of the Agrochemicals Association of Kenya The agchem industry has received backing from the Kenya Association of Manufacturers (KAM), which contends implementation of the new tax measures and backdating commencement date to July 1 will have dire consequences on the operations of companies. “Backdating the taxes to July 1 has left the industry in confusion since sales of pesticides have been ongoing since July 1 where no VAT was charged,” KAM CEO Phyllis Wakiaga says. No doubt, the imposition of VAT on pesticides has come as a shocker for agrichemicals companies. The move was contrary to the industry’s expectations, considering that pest control products were exempted from VAT until April last year, when the status was changed to zero-rated. Despite the industry lauding the decision to zero-rate pesticides, something that made products affordable and accessible to farmers, the celebrations have been short lived. “Favorable taxation of pesticides before the amendment contributed to enhanced affordability and increased use, thus ensuring improved farm production and