Agriculture Ministry seeks VAT reprieve to boost sector growth

Agriculture Cabinet Secretary Mutahi Kagwe has urged Parliament to zero-rate value-added tax on all agricultural inputs, agro-processing materials, and machinery in a move aimed at boosting the competitiveness of Kenya’s agricultural sector.

Speaking before the National Assembly Committee on Agriculture during the presentation of budget estimates for the 2025–26 financial year, Kagwe said that reviewing and harmonising the tax regime affecting import duty, VAT, excise duty for agricultural inputs and packaging materials would help improve the competitiveness of the country's produce both locally and internationally.

"All agricultural pesticides and fertilizers should be reverted to zero rating as opposed to tax exempt and all direct agricultural inputs like seed that are under standard tax rate of 16% be also put under zero rating," Kagwe said.

He also called for zero rating of VAT on machinery and packaging materials used in agro-processing to promote value addition.

The CS proposed a reclassification of tea as a food item so that it can also be zero-rated, saying this would drive both local consumption and value addition.

He added that merging the buyers and packers registration categories in the tea industry would encourage more players to invest in export-oriented processing.

To protect the local tea industry, Kagwe proposed raising the import duty on packed tea from the current 25 per cent to 50 per cent or, alternatively, introducing an import levy.

He also called for the exemption of tea imports meant for re-export from the annual product conformity certification by the Kenya Bureau of Statistics.

"It is our prayer that this committee considers our submission and our unfunded projects even as we operate under tight fiscal framework," Kagwe told the MPs.

The Ministry of Agriculture has been allocated a total of Sh58 billion in the 2025–26 budget, with Sh22.3 billion for recurrent expenditure and Sh35.85 billion for development.

However, Kagwe noted that the ministry faces a funding shortfall.

The recurrent needs for the Livestock and Agriculture departments stand at Sh27.4 billion, but only Sh22.3 billion has been allocated.

For development, the combined requirement for both departments is Sh73.4 billion, yet the allocation stands at Sh35.8 billion.

Kagwe outlined the ministry’s key priorities under the Agriculture department.

These include improving sector efficiency through the use of technology, such as developing crop-specific organic fertilizers, enhancing post-harvest programs, including the purchase of dryers to control aflatoxin levels, improving access roads, and strengthening governance in farmers' cooperatives.

He also proposed increasing funding for strategic food reserves by Sh2 billion to cover all cereals.

For the tea sub-sector, the ministry plans to promote tea factories through Kenya National Trading Company financing, set up common user facilities, and expand tea auction platforms to attract more players.

The ministry also intends to support food security and crop diversification by providing 330,000 fruit seedlings and 250MT of drought-tolerant seeds.

In the sugar sector, reforms will include the upgrade and maintenance of 11 Cane Testing Units and introduction of new, high-yield sugar seed varieties.

Under the Livestock department, Kagwe highlighted the implementation of the Animal Traceability System (ANITRAC) to trace the origin of livestock and animal products.

The ministry will also roll out the Kenya Livestock Masterplan to collect data and guide investments in different livestock value chains.

To support the Kenya Leather Industrial Park-Kenanie, the ministry plans to attract private sector investment by providing infrastructure such as affordable industrial land, power, water, and waste treatment systems.

Kagwe also listed legislative and policy priorities that include the enactment and publication of several key bills, such as the Livestock Bill, Animal Health Bill, Animal Welfare and Protection Bill, Veterinary Practice and Medicinal Products Bill, and the Dairy Industry Bill.