Beautiful African nation, Kenya is well known for it’s coloury CTC teas ideal for milk tea. Recently, they have started to focus more on Pure orthodox teas as well. By the way, as Cabinet Secretary for Agriculture in Kenya Mr. Peter Munya has mentioned, Kenyan government intend to impose ZERO Value Added Tax (VAT) on tea with the purpose of increasing value added tea exports as well as to increase the consumption of locally packed tea. But as Mr Munya pushes for the zero-rating of tea, Treasury must assist his efforts by zero-rating tea packing machinery that was introduced in the 2020 Finance Bill.

Potential packers will need to invest in high-quality packaging machines in order to compete with international brands. Adding 16 per cent to an already expensive machine will only slow down value added tea exports.

Though Kenya is ranked third in global tea production following China and India, Kenya is the leading tea exporter in the world, sadly though, In 2019, Kenya exported slightly below five per cent of teas in value-added form compared to Sri Lanka’s 55 per cent. The difference between the auction and FOB (up to the ship) price of Sri Lanka tea and Kenya tea was USD 1.00 and USD 0.05 respectively.This is due to an unfavourable policy and tax regime, key being accessibility of tea by packers as they have to pay a refundable 16 per cent VAT upfront to access the tea, but that takes years to be refunded.

The Tea Directorate has two categories of traders, buyers and packers. While the buyers can buy tea from the VAT zero-rated auction, packers can only buy theirs from buyers or producers and pay VAT upfront.

So in Kenya, it is better to be a buyer than a packer. But, it is the packer who creates employments, raise foreign exchange earnings and expand nation’s existing markets.

Treasury should also consider waiving the newly introduced one per cent minimum tax for those venturing into value addition.

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References

1. Main Source: https://www.standardmedia.co.ke/editorial/article/2001401637/zero-rate-vat-on-tea-packaging-machinery#=