Scrapping levy is sure to sound death knell for sugar industry
What you need to know:
- The sugar development levy is a consumption tax.
- Sugar development levy is even charged on imported sugar.
- Currently, a consumer pays Sh5 for every kilogramme of sugar he buys.
By abolishing the sugar development levy in his recent budget speech, Cabinet Secretary Henry Rotich has administered euthanasia to the sugar industry.
Isn’t it the height of irony that Mr Rotich is justifying his decision by pretending that his intention is to save the interests of the sugar farmer in western Kenya?
The sugar development levy is a consumption tax. Currently, a consumer pays Sh5 for every kilogramme of sugar he buys. Indeed, the sugar development levy is even charged on imported sugar.
How can the minister claim that he is on the side of the farmer when the net effect of his decision will be to abolish the largest source of subsidised credit to the sugarcane farmer?
The sugar development levy is the only source of loans for cane development. It funds the building of roads and bridges in the sugar belt and finances subsidised fertiliser.
In recent times, the government has resorted to the levy to raise money to bail out the struggling sugar millers. The Sh2 billion recently pumped into reviving the troubled Mumias Sugar Company did not come directly from the exchequer but from this special levy.
Nzoia, Chemelil, Sony, and Muhoroni have all recently received billions of shillings in loans from this levy.
The Kenya Sugar Research Foundation has won accolades for its research work, especially in the area of developing fast-maturing varieties of sugar cane seedlings. This critical institution does not receive a single cent from the national exchequer for its work and programmes because all the money to fund its activities comes from the sugar levy.
How will we sustain research work when we know that nearly all agricultural research institutions that depend on money from the National Treasury suffer chronic underfunding?
We are being told that the National Treasury will now fund sugar research directly from the exchequer. They can tell that to the birds.
The real reason the National Treasury wants to abolish the sugar development levy is because it does not like sources of funds it has no control over.
A national tax charged on both imported and domestically produced sugar but used only in developing a crop in one part of the country is a proposition Nairobi-based policymakers have not accepted.
Several years ago, former Treasury minister Amos Kimunya managed to reduce the rate from 7 to 5 per cent.
POWERFUL NETWORKS
And it is not as if the concept of “earmarked taxes” — the category where the sugar development levy falls — is out of vogue. We still have the fuel levy, the railway development levy, and the airport passenger tax.
At the risk if being accused of engaging in conspiracy-mongering, here are my views on why the sugar development levy is being scrapped.
Behind the scenes, I see the hand of influential private sugar millers and their political allies in high office. These powerful networks are also the force behind the recent push to privatise the State-owned sugar millers.
When you dismantle the most important support base of the local sugar industry by scrapping the only source of quick-disbursing funding to the farming fraternity, you have a better chance of taking control of the market.
The sugar supply chain is firmly under a tiny cartel with tentacles all the way from Uganda, where State-owned sugar companies have become a rarity. When they tell you that sugar farming and production in western Kenya is inherently unprofitable, they repeat a popular myth. How can sugar farming be unprofitable when new private mills — Kibos, Sukari, Butali, Trans Mara — have sprouted in western Kenya in the past few years?
Unless you want to tell me that these private millers are philanthropists, I refuse to buy the narrative that sugar farming in western Kenya is unsustainable.
The farmer in western Kenya makes huge losses while traders and private millers make big profits.
If Mr Rotich was truly interested in reducing the tax burden on farmers, he should have focused on reducing the myriad other taxes they pay.
As we learn in theory, one of the ways to judge a good budget is to look at how it is likely to affect the behaviour of the main actors in the economy — farmers, manufacturers, tourism, and banking.
A good finance minister makes sure that the budget does not distort private choices. Instead of taxing production and the creators of wealth, good finance ministers concentrate on taxing consumption.
By seeking to abolish the sugar development levy, Mr Rotich has shown that his vote is with urban-based consumers of sugar instead of the suffering farmers of western Kenya.
