16% VAT on pesticides

By Evelyn Lusenaka

The Tax Laws (Amendment) Act 2018 ought to be properly interrogated to avoid killing agriculture, the goose that lays the golden egg for the economy. It threatens food security and jobs.

The proposal to apply 16% VAT on Pesticides is baffling. It may yet come to haunt the nation through its deleterious effect on agricultural productivity.

Agricultural pest control products (PCPs) have been deleted from Second Schedule, Part A, subsequently subjecting all pesticides to 16% VAT. On July 18, the President assented to the Bill that also backdates the implementation of the new law to July 1, which is almost impossible.

16% VAT on Pesticides

The agrochemical industry decries the adverse effects of the VAT on agriculture.

Pests and diseases contribute about 40% to 100% crop loss if pesticides are not applied. In addition, the country has had a worrying emergence and upsurge of pests such as the Fall armyworm (FAW). Statistics show that farmers are willing to use pesticides to protect their crops and livestock against diseases.

The new tax will ultimately increase the cost of pesticides, translating into increased cost of agricultural production. Farmers with low resources will not afford the PCPs anymore.

16% VAT on pesticides

Caught between a rock and a hard place. This pic right here is the exact representation of what farmers will experience after the proposed 16% VAT on Pesticides is implemented

Smallholder Farmers

Kenya’s agriculture is dominated by smallholder farmers who cultivate less than an acre. They produce up to 90 per cent of the food consumed in the country. Agriculture also contributes directly to rural employment (80 per cent) and agro-based industry jobs.

With farmers using less than the required PCPs, food security, a ‘Big Four’ agenda pillar, will become a mirage. Pests will have a field day gnawing at the livelihoods of millions of Kenyans at will.

Gains in agriculture, which props up the economy, are likely to be eroded. And when the sector sneezes, the entire economy catches a cold.

The Gross Domestic Product (GDP) and Agricultural Gross Domestic Growth (AGDG) have shown a high correlation in Kenya. Negative AGDP growth often corresponds with GDP.

Food Security

Use of improved agricultural inputs improves yields. This is critical to ensuring food security and supporting the livelihoods of value chain players.

Fertilisers, insecticides and pesticides account for over 70 per cent of the production gross margins for many agricultural commodity enterprises. The new tax will increase production costs and reduce input use.

Favourable taxation of pesticides had made them affordable, encouraging their increased use, boosting farm production and reducing post-harvest losses associated with pests and diseases. The new law is about to erase this gain.

Last year, Kenya imported 14,736.64 tonnes of pesticides worth Sh12.7 billion, up from 14,685.034 tonnes (Sh11.4 billion) the previous year.

Illegal Importation

With this tax, the spiral effect will include illegal importation of cheaper (often sub-standard) pesticides, harming the local industry. It will make Kenya’s agricultural products costlier, hence, less competitive globally than those from countries that give incentives to agriculture.

The big question then is: Will the amount raised through additional taxation of agrochemicals supersede the negative multiplier effect the agricultural sector is likely to suffer and the consequent impact on the overall economy?

Other Voices

This article first appeared on the Daily Nation

Ms Lusenaka is the CEO of Agrochemicals Association of Kenya and CropLife Kenya. Contact Evelyn on evelyn@agrochem.co.ke