Kenya to clear Kes1.6B debt owed to farmers, scraps VAT on tea purchases 

KENYA – In a move to fortify Kenya’s vital tea industry, the government is set to disburse the remaining Kes1.6 billion (approximately US$10.33 million) owed to tea farmers under the Fertilizer Subsidy program.  

The funds, part of the Kes3 billion (approximately 19.38 million) allocated in the 2023–24 financial year, have been delayed due to economic challenges, as acknowledged by Agriculture Cabinet Secretary Mithika Linturi during the Kenya Tea Development Agency’s (KTDA) Directors’ Annual Conference in Nairobi. 

Linturi reassured stakeholders, emphasizing the government’s commitment to fulfilling its promises despite the tough economic climate.  

Highlighting the significance of the tea sector in the Kenyan economy, he declared the Ministry’s dedication to prioritizing the sub-sector. 

Tea, a leading source of American dollars for Kenya, generates an average of over Kes130 billion annually in export earnings.  

Linturi underscored its impact, constituting 4 percent of the Agriculture GDP and supporting the livelihoods of over 750,000 farmers, directly and indirectly benefiting approximately 6 million people.  

Kenya stands as the third-largest global tea producer, trailing only China and India, while being the leading exporter to over 77 countries. 

Despite economic challenges, Linturi reported positive trends in the last two years. KTDA-managed factories have increased green leaf prices by 45 percent and 70 percent, resulting in a notable surge in the total payout to smallholder tea farmers from Kes62.8 billion in 2022 to Kes67.7 billion in 2023. This aligns with the government’s agenda of bolstering returns to farmers. 

Furthermore, Linturi urged KTDA directors to continue supporting ongoing reforms within the tea industry.  

However, he acknowledged challenges stemming from declining prices due to the Middle East and Russian-Ukraine crises, impacting purchasing power in international tea markets. 

Tax incentives to boost trade 

Simultaneously, the agriculture ministry, in collaboration with the Tea Board of Kenya, has initiated an important concept aimed at enhancing the global market value of Kenyan tea.  

Linturi revealed that the concept note, approved by the National Treasury, introduces tax incentives for tea exporters engaged in value addition.  

“By removing Value Added Tax (VAT) on tea purchased from factories or auction centers, the scheme seeks to improve cash flows for these exporters,” he added. 

He further outlined the scheme’s objectives, emphasizing the need for smallholder tea factories to diversify production into specialty teas, offering higher earnings.  

The initiative includes promoting a Kenya tea brand, enhancing orthodox tea manufacturing, and urging KTDA-managed factories to capitalize on incentives for upscale production of specialty teas. 

KTDA Holdings Limited Chairperson Enos Njeru expressed the organization’s commitment to diversifying operations, integrating technology, and investing in state-of-the-art equipment.  

“These measures aim to achieve cost-effectiveness, increase returns, and navigate the evolving global industry landscape,” he stated. 

The combined efforts of debt settlement and value addition initiatives signal a comprehensive approach by the Kenya to support tea farmers and fortify the country’s position in the global tea market. 

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