Smallholder tea farmers affiliated to factories managed by Kenya Tea Development Agency (KTDA) will lose more than Sh754 Million annually due to the newly introduced Minimum Tax which came into effect on January 1, 2021.
The amount is higher than the dividend KTDA Holdings Limited’s 54 factory companies recently declared to its shareholders by Sh20 million for the 2019/2020 Financial Year.
The Minimum Tax will, in effect, eat into the income of smallholder tea farmers and reduce their take-home package earned from their green leaf sales delivered to factories.
The tax introduced through Finance Act 2020 will see tea firms remitting one percent of their gross turnover monthly to Kenya Revenue Authority (KRA) and will be applied to companies whether or not they have posted a profit over the period.
The entities will be forced to remit the Minimum Tax if it is higher than the Instalment Tax – which is payable by tea companies with no tax losses.
KTDA says the tea factories it manages will have to pay on average, over Sh62.8 million monthly in addition to more than 40 taxes and levies that they already remit to various State agencies.
KTDA-managed factories recorded a Sh79.02 billion turnover for the 2019/2020 Financial Year which ended on June 30, 2020 and will need to remit over Sh799 million in the new tax regime.
According to the agency, Ngere Tea Factory in Murang’a County will remit the highest amount at Sh21.8 million yearly, while Litein Tea Factory in Kericho will be second-highest at Sh19.6 million.
Chebut, Makomboki and Momul Tea Factories will all pay over Sh18 million annually while Kimunye and Mununga Tea Factories will have to remit over Sh17 million per year each.
Only sixteen of the 69 factories that are managed by KTDA will pay less than Sh10 million annually.
“With the tea sub-sector’s focus being the enhancement of the socio-economic welfare of the smallholder tea farmer, the new tax will erode farmers’ earnings and could therefore prove to be counterproductive to the cause.
“Consideration should be made to exempt smallholder tea farmers from this tax to protect their earnings, in line with the government directive of putting more money to farmers’ pockets,” said Alfred Njagi, KTDA Management Services Managing Director.