Anger, rip-offs and new taxes: Politics of farming and new Ruto, Gachagua headache
Deputy President Rigathi Gachagua, and Embu Governor Cecily Mbarire tour the stands during the Embu Livestock, Dairy and Fisheries Exhibition at the Kalro grounds, Embu County on March 1, 2024.
What you need to know:
- The Treasury plans to introduce a withholding tax of five percent on farm produce sold to cooperative societies and agro-processors.
- In the new rules, farmers have up to March 31 to register for eTims and keep records to determine taxable income.
Agriculture, the good, old-fashioned sector that feeds the nation and contributes a third of the country’s gross domestic product, is facing turbulent times after a government move to impose taxes on produce sparked anger and fury.
Things have got even more heated with the requirement to use the new Kenya Revenue Authority the electronic tax invoice management (eTims).
But for farmers, this is just part of the politicisation of farming — big promises, then disappointment after another, starting from founding President Jomo Kenyatta to Dr William Ruto.
The sector, which employs 40 per cent of the total population and more than 70 percent in the rural areas, is the backbone of the economy, and the farmers are what President Ruto called “our foremost patriots.”
They till, weed, toil and sweat it out to feed a nation — but with very little returns, and having to battle powerful cartels and middlemen that take away their lunch money, having not done a thing to do the heavy lifting.
In the new rules, farmers have up to March 31 to register for eTims.
Ordinarily, farmers pay value-added tax (VAT) throughout the production period – through purchase of fuel, farm inputs like seeds and fertiliser, pesticides among other costs. They have to keep records that will be deducted from the total turnover to determine the taxable income.
The new scheme is as a result of the Finance Act, 2023 and farmers, even those who produce a single bag of foodstuff for sale, are required to have a book of accounts on expenses like plough, planting, weeding, harvesting, among other costs, until the produce reaches the market.
KRA has already directed farmers to register with eTims using their mobile phones or online. It has been carrying out sensitisation programmes on how the system operates.
But it is emerging that a good portion of farmers are not tech literate and lack knowledge on bookkeeping.
“The system is disadvantageous to small-scale farmers where most of the work is communal. Most of such farmers have no access to the internet or smartphones and know nothing about bookkeeping to monitor expenses and determine actual taxable profit from their investment,” said Kipkorir Menjo, the Kenya Farmers Association director.
The Treasury plans to introduce a withholding tax of five percent on farm produce sold to cooperative societies and agro-processors in a bid to expand the tax base.
Under the new system, businesses are required to produce an electronic tax invoice for all the transactions, failure to which they cannot claim the expense when filing for income tax.
“Some of the farmers are not registered under any cooperative societies and require a lot of sensitisation before the new tax system is operationalised,” said Jackson Kemboi from Moiben, Uasin Gishu County.
Some millers in the Western Kenya region have expressed fears that they are likely to be taxed on payments made to farmers for purchases made without the use of eTims invoices.
“What happens to produce purchased from farmers without eTims invoices between January 1 and March 31? Will millers be made to foot the charges thus subjecting them to heavy losses?” posed Mr Ken Nyaga, chairman of the United Grain Millers Association.
According to KRA, the new system will help the taxman monitor the stock changes for small businesses, especially farmers who supply to co-operative societies.
The Kenya Kwanza administration might back down on the proposals, given remarks by Deputy President Rigathi Gachagua on Friday.
“This tax matter that was introduced as a law in Parliament, we see it has a little problem. It wants those farming macadamia and others to start getting taxed. We sat down with the President and the Treasury Cabinet Secretary. We found a solution and we will talk to our MPs. Because we can’t help a farmer with one hand and hurt them with another,” he said.
The shifting of goalposts is yet another symptom of the politicisation of the sector. From maize to sugarcane, there is always a policy being dangled. A political declaration.
The sugar sub-sector has been a rich fodder for politicians in every election cycle as they seek the support of people who once earned a living from production of the sweetener.
Despite all the promises and attempts by the previous governments, the once lucrative sector is yet to benefit the residents of western and Nyanza sugar belts.
With the capacity of contributing an average of 15 percent of the country’s agricultural GDP, around 25 percent of Kenya’s population directly or indirectly depend on the sugar industry for their livelihood.
The misfortune in the sector struck in the financial year 2012-2013, when the one-time country’s giant manufacturer, Mumias Sugar, recorded a net loss that accumulated into billions. It was declared insolvent and put into receivership in 2019.
While President William Ruto has promised to sort out the problems facing the turbulent sugar industry, sugarcane farmers have raised concerns that uncontrolled importation of the sugar could make the turnaround of the sector a mirage.
“We call on the sugar regulator to move with speed and take control of the importation of sugar to cushion farmers and local manufacturers from incurring losses,” said Kenya Sugarcane Growers Association (Kesga) Secretary-General Richard Ogendo.
He regretted that there is nothing to show for billions of shillings issued by the Mwai Kibaki and Uhuru Kenyatta administrations.
“Most of the issues were being addressed towards the General Election and were meant to hoodwink residents to vote for them, but were quickly abandoned after getting to office,” said Mr Ogendo.
He pointed out that importation of tax-free sugar by powerful cartels was used to oil campaigns to the disadvantage of farmers and workers who were employed in the public sugar mills.
The sector consists of more than 250,000 smallholder farmers, supplying over 92 percent of the sugarcane processed by sugar companies, while the remainder is produced by sugar firm-owned nucleus plantations.
The write-off of Sh117 billion to clear the debts of the six State-owned sugar millers has however rekindled hopes among stakeholders who are hoping that the move could roar back the factories whose operations have been crippled over the years.
The bailout targets South Nyanza Sugar, Nzoia Sugar, Muhoroni, Chemelil, Miwani and Mumias Sugar companies, which have been earmarked for leasing.
Successful bidders will control factories, office buildings, machinery, equipment, nucleus farms, staff and guest houses, schools, sports stadia and service contractor yards owned by the millers.
The private investors are expected to replace the dilapidated equipment that has crippled operations and caused the factories to crush below their capacities.
Kenya Association of Sugarcane and Allied Products (Kasap) chairman Charles Atyang’ has, however, raised concerns that the more than five reports generated in the last 10 years have not yielded much to address the woes in the sector.
While noting that some recommendations have the capacity to turn around the sector’s fortunes , he faulted the introduction of zoning as contained in the Sugar Taskforce Report of 2019.
“We don’t want to be tied to non-performing millers. Farmers want a free and fair competitive market with the right to sell their raw materials to a factory of their choosing,” he said.
On the other hand, Kenya National Federation of Sugarcane Farmers (KNFSF) chairman Ezra Okoth has accused Agriculture and Food Authority (AFA) chairman Cornelly Serem of politicising the sugar industry for personal gain and self-interest.
He accused Mr Serem of irregularly calling a meeting to discuss critical decisions facing the sector.
“The chairman is representing the very cartels who have successfully destroyed Mumias Sugar which has now been revived with the help of President Ruto.
“As far as we are concerned, he is doing the work of the executive in the Sugar Directorate and we wonder why he is not behaving the same in other crops,” said Mr Okoth in a protest letter to the Head of Public Service and Agriculture PS.
In North Rift, maize is always on the plate when politics is being played.
North Rift is under the burden of increased cost of farm inputs — fertiliser or imports of the grains, especially during harvest season, which lowers prices triggering protests from farmers.
According to Dr Ruto, the country uses about Sh500 billion annually to import food, but his Kenya Kwanza administration plans to slash the expenses through subsidisation of farm inputs and mechanisation to increase food production and in turn limit imports.
Maize prices in the region have dropped drastically in the past two months from Sh6,200 to Sh3,100 and there are fears that the prices are likely to plummet further as farmers rush to sell the produce to invest in this season’s crop and the impending arrival of cheap produce from East Africa Community (EAC) member states.
“Zambian maize will be ready in May and June while bumper harvest is expected in mainland Tanzania in April and June. Kenya is the main market for the produce. This will inevitably lead to a drastic decline in prices in the local and regional market, hurting farmers,” said David Maina who deals in commercial cereal business in EAC countries.
The maize farmers are already feeling the impact of the declining prices and have taken issue with the State over failure to put in place measures to cushion farmers against exploitation by cartels and unfair competition from cheap imports.
“It is unfortunate that successive governments have exposed farmers to exploitation by cartels. There is a need to subsidise production costs while offering a steady market for the produce,” said James Kwnabai from Sergoit, Uasin Gishu County.
Elected leaders from maize-growing zones are under pressure to push for legislations that will cushion them from exploitation by cartels and transform the sector into a profitable investment.
Reporting by Mwangi Muiruri, Barnabas Bii and Victor Raballa
