Kenya will zero-rate tax on local tea in order to allow value addition of the commodity in the country.
This is also meant to discourage traders who reimport the beverage after it has been exported in order to avoid payment of Value Added Tax (VAT).
Agriculture Cabinet Secretary Peter Munya said the plan will allow more traders to do value addition here, a move that will increase consumption of tea, whose growth has remained low over the years despite rising production.
Currently, a trader buying tea at the auction for local consumption is forced to pay 16 percent VAT even after adding value to the commodity, a move that has discouraged local purchases in order to avoid coughing up the charge.
“We’re going to zero-rate tax on tea that is value-added locally to encourage our traders to buy the commodity at the auction and do value addition right here in the country,” Mr Munya said last week.
This is good news for tea stakeholders, who have for long urged the government to zero-rate it, as this will ultimately improve consumption because of lower cost in obtaining the beverage.
Kenya is the largest exporter of tea in the world, but only five per cent of the total produced is consumed locally.
Traders who import value-added tea do not incur the VAT levy, hence making it cheaper for them to ship in instead of buying at the auction.
Some firms, like Kericho Gold and Ketepa, do value addition for sale locally, but this makes their tea relatively expensive, locking out would-be buyers.
Most countries that import Kenya tea normally buy it without value addition so as to blend it with teas from other regions.
Common use facility
For instance, Pakistan which is a top buyer of the beverage, procures more than half of the commodity as processed at the factories.
The government is putting up a common user facility at Dongo Kundu, Mombasa, which will be used by all the stakeholders in value addition of the tea before it is exported.