RATIN

VAT on pesticides threatens food security

Posted on August, 24, 2018 at 10:45 am


By Kipkemboi Rotuk

The Tax Laws (Amendment) Act, 2018 has now been enacted into law.

True to its intended objective of rationalising tax laws to optimise on revenue and reduce supplies under the zero-rated category, the Act has introduced a number of reasonable and progressive measures, such as exemption from VAT for transfers of business as a going concern, goods supplied for emergency and household goods imported by passengers arriving in Kenya from foreign destinations.

One provision that stands is the imposition of VAT on agricultural pest control products and requiring approval of the Agriculture Cabinet Secretary for zero-rating of inputs used in the manufacture of pest control products.

Being a predominantly agricultural nation, the effects of this decision are far-reaching on the issue of food security, which is one of the government’s Big 4 agenda. By its very nature, VAT is tax neutral on the supply chain and its weight is always borne by the final consumer, in this case the farmer.

The high cost of inputs will push up the cost of the final produce, forcing the farmer to increase the food prices for them to make reasonable margins.

If anything, some farmers might not afford the costs of these inputs, and might opt out of agricultural activities altogether, leading to less acreage under food production.

Similarly, requiring the approval of the cabinet secretary for zero-rating of inputs introduces another unnecessary bottle-neck and begs a number of important questions.

What criteria will the Cabinet Secretary use to determine which manufacturers and which products qualify for zero rating? Will manufacturers apply and wait for the approval all the time?

The changes create bureaucracy, introducing additional administrative costs in getting the approvals and lead-time between approval and procurement.

Kipkemboi Rotuk, Tax adviser, KPMG Advisory Services; rronoh@kpmg.co.ke

Source: Business Daily