State eyeing Sh14bn annual revenues through crops tax
Products that are sold to cooperatives will be subject to a withholding tax of five per cent.
The government is eyeing at least Sh14.3 billion in additional revenue in the proposed withholding tax of five percent on farm produce sold through co-operatives, tabulation done by the Nation shows.
This, even as analysts expressed fears that the new tax measure, which are aimed at widening the tax-base, are likely to be counterproductive by pushing farmers into informal channels by selling their produce directly to consumers rather than through co-operative societies.
Official data shows that, by the end of 2022, selected crops valued at Sh286 billion were sold through marketing boards, including co-operative societies and factories, which means they would have earned the State around Sh14.3 billion if the new tax measure was in place.
In the Medium Term Revenue Strategy 2023, the government announced that, in the three fiscal years from July to June 2027, it would apply a five percent withholding tax on all farm produce sold to co-operative societies.
Agriculture, the informal and digital sectors are some of the hard-tax areas that have been identified by the National Treasury in the MTRS.
According to the National Treasury, while agriculture’s contribution to the size of the economy, or the gross domestic product (GDP), is huge at 21.2 percent, its contribution to the tax revenue is less than three percent. This, the Treasury said, is an indicator that “the sector is under-taxed.”
Tea, Kenya’s leading source of foreign exchange earnings, is most likely to be the largest contributor to this new tax pot giving the taxman Sh7.8 billion from total sales of Sh156.7 billion in 2022, according to figures from the Kenya National Bureau of Statistics (KNBS). Most of this tea is sold to the Kenya Tea Development Authority (KTDA).
Sugar-cane, sold by farmers directly to factories, would have earned the country Sh1.97 billion, milk (Sh1.8 billion), coffee (Sh1 billion) and wheat (Sh543 million).
“I think that this will likely backfire on the government, especially if you read together with the ETIMs requirements for agro processors,” said Dr Timothy Njagi, a research fellow at Tegemeo Institute, an agricultural public policy think-tank affiliated with Egerton University.
The Kenya Revenue Authority (KRA), however, clarified that farmers and small traders will be using a new system aimed at showing transactions rather than generating and transmitting electronic invoices through the Electronic Tax Invoice Management System (e-Tims).
