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