The horticulture sector is grappling with a significant backlog of Sh12 billion in tax refunds accumulated over the last three years, causing difficulties for businesses’ operations and expansion plans. The flower industry, a substantial foreign exchange earner for the country, is particularly affected by higher taxation, increased costs of farm inputs, high water tariffs, logistical challenges, and additional operational expenses.
In addition to the tax refund backlog, the floriculture sector faces other challenges, including rising labor wages, soaring electricity bills, and high freight charges.
The Chief Executive of the Kenya Flower Council (KFC), Clement Tulezi, highlighted the severe impact of delayed refunds on farmers across the country, particularly in Naivasha, Kenya’s floriculture heartland.
“The government owes us over Sh12 billion in VAT (Value Added Tax) refunds… The government should prioritize tax refunds to the flower farmers to enable them to meet their financial obligations,” said Mr. Tulezi.
Efforts by the lobby group to engage the Kenya Revenue Authority (KRA) and advocate for tax cuts for the industry have not yielded results.
“The flower sector is facing double taxation and high power charges. The Sh12 billion Value Added Tax refunds are just adding to the pain,” said Richard McConnell, a flower firm owner.
Agriculture Cabinet Secretary Mithika Linturi assured investors in the flower sector that KRA is addressing the issue.
“In 2020, amid the grip of Covid-19, KRA paid flower farms about Sh7 billion in tax refunds, from the Sh10 billion they demanded to keep them afloat.”
However, the recent increase in water charges and National Social Security Fund (NSSF) contributions, alongside other challenges, are posing significant threats to flower firms, with some businesses closing, downsizing, or changing their operations.
To address the situation, the Kenya Flower Council suggests measures such as zero-rating farm inputs like fertilizer and eliminating some “punitive” taxes. The double taxation issue, with flower producers being taxed at both county and national levels, is also a significant concern.
As a result of these challenges, Kenya’s flower exports have declined by 15,000 tonnes, impacting the sector’s profitability and the country’s foreign exchange earnings.
In 2020, Kenya’s flower exports amounted to Sh108.7 billion, while the horticulture sector, which includes flowers, earned Sh154 billion for the country in 2021.
To mitigate high electricity costs, some flower firms have turned to solar energy, as energy costs are expected to increase further. The challenging business environment in Kenya is driving some companies to close, downsize, or adapt their operations to cope with these challenges.
