Capital FM (Nairobi)

22 November 2012

Kenya: Tea Industry Demands Review of the New Levy

Conflict between the tea industry regulator and stakeholders over the introduced tea levy early this year is far from over as the East African Tea Trade Association (EATTA) demanded a review of the one percent Ad Valorem levy imposed on the total custom value of the tea at the point of sale at the Mombasa Tea auctions.

The Association's chairman Peter Kimanga argues that the levy gazetted on January 27, should be reduced to 0.25 percent adding the increase was hurting the tea farmers especially the small scale farmers who contribute 60 percent of the country's total tea production.

Before the new levy, tea farmers paid a levy of 46 cents per kilo of tea sold at auction.

"Most Kenyan high quality tea is produced by small farmers, thus commanding a higher price, so it is the small holders who end up paying a disproportionate amount of the new tax," said Kimanga.

The gazettement of the new levy which came into effect in February this year, followed the introduction of the Tea Amendment Act in March in 2011.

According to the Tea Board of Kenya, 50 percent of the levy would go to the execution of market development programmes and value addition, 40 percent to go to the Tea Research Foundation of Kenya (TRF) while 10 percent towards the development of infrastructure in the industry.

But EATTA argues that the need for an increase in the requirements of TBK and TRF has not been demonstrated, and that infrastructure expenditure should be undertaken by, say Kenya Urban Roads Authority (KURA) and not TBK.

The association now wants dialogue with the ministry of agriculture and the Tea Board to look into the matter claiming that the levy was introduced without enough consultation from all stakeholders.

They say if the levy continues, the country risks loosing markets to the neighboring countries due the high prices since the levy is only applicable to Kenyan tea.

"Mombasa Auction Centre is a multi-origin auction and since the Ad Valorem tax is charged only on Kenyan tea, tea exporters will discriminate against our tea and buy more from the origins than they normally would," said EATTA Managing Director Edward Mudibo.

The total money collected based on volume would range between Sh300 and Sh400 million per year but with the new tax, TBK will collect up to Sh1 billion.

The tea industry last year generated Sh109 billion in foreign exchange earnings.

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