The Agrochemical Association of Kenya (AAK) has opposed the government move to introduce a 16 per cent Value Added Tax (VAT) on agricultural pest control products that became effective July 1. Previously, the pest control products were zero rated but in the July 18, 2018 President Uhuru Kenyatta assented to the Tax Law (Amendment) Act that introduced a 16 per cent VAT.
The association now says that the VAT will increase the cost of pesticides, which will be passed on to the farmers who will incur high cost of production hence skyrocketing food prices.
Kenya Association of Manufacturers has already written to the National Treasury asking for the suspension of the tax to facilitate talks. In a statement by AAK, the association boss Evelyn Lusenaka said the use of improved agricultural inputs like seed, fertilizers and pesticides are necessary in improving agricultural production. “The introduction of 16 per cent VAT will have the immediate effect of increasing the cost of agricultural production for poor farmers and also higher consumer prices for agricultural produce,” said Lusenaka. Noting that pests and diseases contribute from 40 to 100 per cent crop loss if interventions by pesticides are not put in place, Lusenaka said the new VAT poses serious threat to food security in the country.
“The county has noted emergence and upsurge of new pests such as Fall Army Worm (FAW), among others which pose a threat to food security in Kenya if not controlled,” she said. “Fertilizers, insecticides and pesticides alone account for over 50 per cent of the production Gross Margins for many of the agricultural commodity enterprises.” In the tax law (Amendment) Act 2018, Agricultural Pest Control Products (PCPs) have been deleted from Second schedule Part A which subsequently subjects all pesticides to 16 per cent VAT. Lusenaka, added that ultimately, there would be compounded adverse effect on the Big 4 agenda, reduced agricultural production, loss/reduced incomes and livelihoods for various value-chain players, increased food insecurity and reduced agricultural sector growth and hence effect on GDP.
“The gains so far achieved in the agriculture sector are likely to be eroded. The move to make the products taxable at 16 per cent will make them more expensive. This may in turn have a direct negative bearing on food security, a key pillar in the Government’s Big Four Agenda,” said the AAK boss. The association urged the government to revert to the old tax regime where VAT on agricultural pest control products was zero-rated.