Kenya’s Tea Taxes

KENYA

Kenya’s small tea growers are an increasingly innovative force within the industry, in challenging conditions: global market competition and price pressures, climate change, especially drought, and threats to the established labor force from machine harvesting,

And the complexities and number of tax levies. A 2014 review identifies 42 individual taxes and fees accumulated end-to-end supply chain.

The most recent airing of the tea sector players’ concerns is the demand that the government remove 38 of the multiple levies and fees they pay. These include a cess – local tax – collected by Mombasa county that charges trucks carrying produce for export. This is in effect a highway toll. Observers point out that a county that plays no role in the growing, processing, packaging, and shipping of tea can still tax it in transit.

The history of the 32 Kenya shilling (KES1.00=US$0.01) cess per package captures the volatility and impact of taxes. It was introduced in 2014 but suspended in 2015, following a successful lawsuit. The decision was then reversed and the cess re-imposed. Within weeks, the county reached an agreement with a regional tea association to scrap it for goods entering the Mombasa port city. A similar deal was made with the East African Tea Trade Association (EATTA), the main organization focused on boosting African tea markets.

In early 2018, the cess was back.

It adds to levies that are small in absolute terms but a heavy burden in a sector operating on thin margins. A 12% VAT is charged for tea sold and consumed locally. A 1% levy on tea traded at the Mombasa auctions is not incurred by foreign sellers. This means they can price their goods lower than Kenyan growers and packers even where the quality is lower. The Mombasa auction is the world’s largest and ten tea producing nations bring their goods to it.

Brian Ngwiri, EATTA’s trade development manager, summarizes the situation as of mid-2018 in an appeal for consolidation of “the multiple levies and taxes that are a bottleneck to efficient transaction of business… Some of the neighboring countries have zero taxes.’ He adds that Kenyan businesses face higher tariff when they export within Africa than to other markets.”

In April 2018, Nandi County announced a new levy on tea-plucking machines. Plus ça change, meaning the more it changes the more it remains the same ….