The newly introduced Minimum Tax came into effect on January 1, 2021.
Smallholder tea farmers affiliated to Kenya Tea Development Agency (KTDA) managed factories face an annual loss of over Sh754 million to the new Minimum Tax.
The newly introduced levy (Minimum Tax) came into effect on January 1, 2021.
The amount is higher by Sh20 million the dividend that KTDA Holdings Limited recently declared to its shareholders – the 54 factory companies and by extension the smallholder farmers who own them – for the 2019/2020 financial year.
This will eat into smallholder tea farmers’ income and reduce their take-home package earned from their green leaf sales.
The tax, which was introduced through the Finance Act of 2020, will see companies remit one per cent of their gross turnover every month to the taxman, and will be applied indiscriminately to firms whether or not they have posted a profit over the period.
Further, entities will remit the Minimum Tax if it is higher than Installment Tax– which is payable by companies with no tax losses.
The implication of this to KTDA-managed tea factories, using the last financial year’s audited accounts, is that they will be, on average, paying over Sh62.8 million each month.
This is in addition to the over 40 taxes and levies they are already remitting to various government agencies.
KTDA-managed factories recorded a Sh79.02 billion turnover for the year ending June 30, 2020.
Under the new tax regime, it would need to remit over Sh799 million.
Ngere Tea Factory in Murang’a County would remit the highest amount at Sh21.8 million annually, while Litein Tea Factory in Kericho would be the second-highest remitter at Sh19.6 million.
Chebut, Makomboki and Momul Tea Factories would all be paying over Sh18 million annually while Kimunye and Mununga Tea Factories would be remitting over Sh17 million each.
Only sixteen of the 69 factories that are managed by KTDA would be paying less than Sh10 million annually.
“With the tea sub-sector’s focus being the enhancement of the socio-economic welfare of the smallholder tea farmer, the new tax will erode farmers’ earnings and could therefore prove to be counterproductive to the cause,”KTDA management services, managing director, Alfred Njagi, said yesterday.
“Consideration should be made to exempt smallholder tea farmers from this tax to protect their earnings, in line with the government directive of putting more money to farmers’ pockets,” he added.