New tax to affect tea farmers

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Smallholder tea farmers affiliated to factories that are managed by the Kenya Tea Development Agency (KTDA) will lose over KShs 754 Million every year when the newly introduced Minimum Tax which came into effect on the 1st of January 2021.

This  amount is higher by KShs 20 million the dividend that KTDA Holdings Limited recently declared to its shareholders – the 54 factory companies 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 remitting one percent 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 Instalment 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 KShs 62.8 million each month, in addition to the over 40 taxes and levies they are already remitting to various Government agencies.

KTDA-managed factories recorded a KShs 79.02 billion turnover for the year which ended June 30, 2020 and would need to remit over KShs 799 million with the new tax regime.

Ngere Tea Factory in Murang’a County would remit the highest amount at KShs 21.8 million annually, while Litein Tea Factory in Kericho would be the second-highest remitter at KShs 19.6 million. Chebut, Makomboki and Momul Tea Factories would all be paying over KShs 18 million annually while Kimunye and Mununga Tea Factories would be remitting over KShs 17 million each. Only sixteen of the 69 factories that are managed by KTDA would be paying less than KShs 10 million annually.

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