Tea sector faces crisis over newly introduced levy

A conflict between the tea industry regulator and stakeholders over the newly introduced tea levy has plunged the sector into a crisis.

While the regulator says the levy was gazetted and introduced two months ago after a series of consultations with industry representatives, stakeholders deny having been consulted.

“The Tea Board of Kenya claims to have consulted the stakeholders but the truth is that we were not involved in the process at all,” the East African Tea Trade Association (EATTA) chairman Peter Kimanga said at a press conference in Mombasa on Thursday.

EATTA, a consortium of tea industry players in East Africa, now wants the minister for Agriculture to immediately suspend the tax and appoint an all-inclusive committee that will resolve the issue.

On Thursday, the Tea Board of Kenya (TBK) issued a press notice alleging that some stakeholders were wrongly seeking to portray the levy as punitive and one whose implementation will negatively impact the tea industry.

The notice, which was signed by the TBK managing director Sicily Kariuki, said that the levy was gazetted after consultations with EATTA, Kenya Tea Growers Association and the Kenya Tea Development Agency.

TBK urged the industry leaders to stop misinforming the public and reassured that the levy would be prudently utilised for the development of the sector.

But on its part, EATTA accused the tea board of introducing the ad valorem tax on value of tea in total disregard of recommendation by a task force that the levy be based on volumes sold.

“The amounts being charged are totally different from those recommended by the task force of 2007 which pegged it at 54 cents per kilogramme. In addition to the 46 cents which farmers are currently paying, this would add up to one shilling per kilogramme,” said EATTA managing director Edward Mudibo.

“The total money collected based on volume would range between Sh300 and Sh400 million per year but with the new tax, TBK will collect up to Sh1 billion. This is an increase of Sh600 million which is punitive,” Mr Mudibo said.

According to the tea board, the Act provides that an ad valorem levy through a gazette notice under subsection (1) shall be collected at the rate not exceeding 2 per cent of the gross sales.

“However, the government imposed the levy at 1 per cent through a gazette notice dated January 27, 2012, following consultations with industry stakeholders,” noted the statement.

TBK said that 50 per cent of the levy will go to the regulator for execution of market development programmes and value addition while 40 per cent will go to the Tea Research Foundation of Kenya (TRFK) for “stakeholder-driven research programmes”.

The other 10 per cent will go towards the development of infrastructure in the industry.

The board said that the current 46 cents per kilogramme is largely inadequate to facilitate its operations together with the TRFK in the execution of their mandates of development and research in the industry.

The introduction of the levy in February was met with sharp reactions with EATTA suspending Mombasa auction for days. The auction only resumed after TBK said the tax would be levied based on the hummer price and not the customs value of tea sold and promised to refund the difference.

But on Thursday, the officials said traders had not yet been refunded any money despite having paid the tax for the past two months.