April 25, 2016 / 7:40 AM / 3 years ago

Kenya reviews tea taxes to boost main foreign exchange earner

* Kenya reviewing taxes and levies on tea -official

* Tea is Kenya’s No. 1 export crop

* Small-scale farmers say being squeezed

* Kenya’s Mombasa port hosts regional tea auction

By Duncan Miriri

NANDI HILLS, Kenya, April 25 (Reuters) - Kenya is reviewing taxes and levies on tea production after industry executives and farmers said the charges were putting them at a competitive disadvantage.

Producers of Kenya’s No. 1 export earner complain about a 1 percent levy on tea sold at a weekly auction in Mombasa and a 16 percent value added tax on tea processed and consumed locally.

The East African nation is the world’s leading exporter of black tea, a crop that offers a livelihood to thousands of small-scale growers who complain not enough cash reaches them.

Kenya earned 125.25 billion shillings ($1.24 billion) from tea exports last year on output of 399.21 million kg. A slightly stronger shilling means officials expect earnings to slip to 115 billion to 120 billion shillings this year.

Top buyers of Kenyan tea include Britain, Afghanistan, Egypt, Sudan and Pakistan. Kenyan officials have also been holding marketing trips to Asia in a bid to increase sales of the commodity to countries like China.

A Kenyan department of agriculture team is reviewing taxes and levies, the department’s principal secretary Richard Lesiyampe, told Reuters, adding a report was due out shortly.

“It will really help us to see what kind of levies, what kind of licences and fees that we can indeed waive,” he said.

The port of Mombasa hosts a weekly auction of tea produced in East African countries including Kenya, Uganda, Burundi, Rwanda and Tanzania.

“We have 10 countries which bring their tea to the auction, which is the largest in the world, and out of these countries only Kenya charges a levy, so Kenyan farmers are disadvantaged,”

Edward Mudibo, the managing director of the East Africa Tea Traders Association, said.

The sales levy does not apply to neighbouring producers.

FARMERS SQUEEZED

Tea growers in the lush Rift Valley highlands say that taxes and high costs of labour and fertilisers hurt earnings and discourage expansion.

“If you look at the auction, the price is high but farmers are completely squeezed. The government must find a way of helping the farmers,” said 65-year-old farmer Josphat Sirma.

The average price of Kenyan tea was $2.98 per kg, or about 300 shillings, at the weekly auction in Mombasa last year.

But small-scale farmers like Sirma can expect to receive just 45 shillings per kg, before paying for labour. They say they need 60 shillings to survive or expand output.

Joseph Lagat, a director at Siret Tea Company, said poor returns and high fertiliser costs risked driving small growers out of business.

“You will have very low yields and tea quality will fall, because you will get tougher leaf which is very difficult to process,” Lagat said. ($1 = 101.1000 Kenyan shillings) (Additional reporting by Wendell Roelf in Nairobi; Editing by Edmund Blair and Alexander Smith)

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