The flower industry in Kenya is currently facing significant challenges, primarily related to tax issues. Over the past three years, horticulture companies have accumulated a backlog of Sh12 billion in tax refunds, causing operational and expansion difficulties. The flower sector, in particular, is grappling with increased taxation, rising prices for farming inputs, high water tariffs, logistical complications, and additional operational expenses that are jeopardizing its stability.
In addition to these challenges, the floriculture industry, which plays a crucial role in foreign exchange earnings, is confronted with other issues, including escalating labor costs, soaring electricity bills, and high freight charges.
The Chief Executive of the Kenya Flower Council (KFC), Clement Tulezi, emphasized that the delayed tax refunds have severely impacted farmers across the country, particularly in Naivasha, Kenya’s heartland for floriculture and home to leading flower companies. Tulezi urged the government to prioritize these tax refunds to help the flower farmers meet their financial obligations.
Despite efforts to engage with the Kenya Revenue Authority (KRA) and request tax cuts for the industry, these challenges remain unresolved. The Agricultural Employers Association (AEA) is also advocating for the tax refunds, pointing out the double taxation and high power costs that the flower sector is facing.
Agriculture Cabinet Secretary Mithika Linturi has assured investors in the flower sector that KRA is actively addressing the issue. In 2020, KRA provided around Sh7 billion in tax refunds to flower farms, helping them withstand the impact of the COVID-19 pandemic.
However, the recent changes in water charges, increased NSSF contributions, and additional costs are further straining the flower firms. Water charges have risen significantly, and given the industry’s heavy water usage, this is exacerbating the challenges in the sub-sector. The cost of energy is also expected to increase in the near future.
As a result of these difficulties, some flower firms have had to close, while others have downsized or altered their operations. Consequently, Kenya’s flower exports have decreased by 15,000 tonnes, down to approximately 210,000 tonnes, and the situation has led to a drop in the country’s flower export earnings.
To address these issues, Mr. Tulezi suggests that the government should consider measures like zero-rating farm inputs such as fertilizers and eliminating certain onerous taxes. It has been noted that flower producers are currently subject to taxation at both the county and national levels, constituting a form of double taxation, which the Kenya Flower Council finds problematic.