Tea Tax Riles Kenyan Producers

A one-percent levy on the price paid for tea has riled Kenyan producers who say the government-imposed tax will render their teas uncompetitive on world markets.

"The new levy and the KRA proposal for handling of non-Kenyan teas is a very retrogressive step of very harsh controls that if implemented will kill tea production and trade in the country. The Mombasa tea industry is already facing competition from Dubai," said James Mureu, Kenya National Chamber of Commerce and Industry (KNCCI) Chairman, Mombasa County.

Agriculture Minister Sally Kosgei instituted the tax in late January.

"This new levy will make Kenya’s tea uncompetitive on the global market by pushing up its prices. It is also punitive to local tea farmers as it does not apply to tea from East African countries using the Mombasa auction," said Mureu.

A tea sold for $3 per kilo would be assessed a 3-cent tax under the new system which replaces a manufacturing fee of Sh46 (.55-cents) per kilo.

“The main motive for the changes was to curb the diversion of foreign teas to be used for blending with the Kenyan tea as well as protect government revenue in taxes,” said Kenya Revenue Authority acting deputy commissioner of customs Kamau Ng’anga. He refuted claims that the new regulations will reduce competitiveness.

The Tea Board of Kenya (TBK) on Wednesday said the levy will finance activities like research, infrastructure development and value addition, which are vital for the growth of the industry.

Sicily Kariuki, managing director of the Tea Board said “the tea ad valorem levy should not be viewed as punitive or likely to impact the industry negatively as indeed it will be beneficial once invested in the sector.”

Kariuki said “similar levies and or cess are applicable in tea producing countries including Sri Lanka, India, China and Bangladesh for industry development.” She added that locally industries like sugar and coffee also charge levies to support their development.

Under the new system, traders will be required to store foreign tea in bonded warehouses.

Accessing tea from a bonded warehouse requires lengthy procedures at the customs and movements of teas between an estimated 16 bonded warehouses and some 57 active tea buyers using contracted transporters, said Mureu.

He warned that those who feel discriminated against may be forced to look for alternative ways of disposing of their foreign teas.

East African Tea Trade Association (EATTA) expressed concerns that the levy will affect exporters with existing forward contracts given that these arrangements are negotiated and pre-arranged, according to a story published in The Standard.

The association wants the levy suspended until all administrative bottlenecks are addressed, including value added services the tea undergoes such as warehousing, transport, packaging, blending, ocean freight, and sellers margin.

EATTA also wants a gap created between manufacturing cess and ad valorem to ensure some teas are not subjected to double taxation. This is in addition to a review of the one per cent charge to be based on fixed volumes instead of a percentage.

Last year Kenya produced 377 million kgs of tea earning $1.27 billion, compared to the 399 million kg it produced in 2010, which earned $1.14 billion.

Source: The Standard, The East African