The planned review of Value Added Tax (VAT) on tea will make Kenya’s beverage cheaper in the world market and at the same time increase local consumption.
The Cabinet recently sanctioned a review of VAT charged on tea, a call that traders have been making for years to make the commodity competitive in the world market.
Tea traders argue that 16 percent VAT stops buyers from buying directly from Kenyan producers outside of the official auction as it will attract the tax, forcing them to wait for refunds which take longer to process.
The Cabinet in its first sitting a fortnight ago recommended a review of the 16 percent VAT levied on tea with the view to revitalising the agriculture sector.
“The VAT discriminates Kenya teas since buyers can buy non-Kenya teas, which are not charged VAT as they are on transit,” said Peter Kimanga, a director with Global Tea.
The Mombasa auction trades tea from 12 other countries within Africa and most of these beverages do not attract VAT, making it cheaper for local packers to purchase their produce at the expense of the locally produced ones.
Mr Kimanga said the tax has also made Kenyan tea expensive in the local market leading to low consumption of the beverage that now stands at 400 grammes per person per year when compared with a country like Pakistan whose per capita consumption stands at one kilo.
The packers pass 16 percent duty levied on the beverage to consumers.
The VAT has had a negative impact on buyers of specialty teas who are unable to buy them for exporting since these beverages are not traded at the auction and can only be bought directly from producers.
This has seen producers holding huge stocks of unsold specialty beverages like Orthodox, Green, and Purple teas for lack of buyers who shy from expensive taxes.
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In the world market, Kenya’s tea has also to compete with produce from Sri-Lanka, the world’s leading producer, which does not levy tax on its produce, making the Kenyan beverage expensive on the global stage.
Kenya is the number one tea exporter in the world market but traders argue that it is facing stiff competition from other teas globally.