By Ongaga Ongaga
Kenya’s fresh produce exporters have urged Parliament to introduce urgent fiscal reforms under the Finance Bill, 2026, warning that rising taxation and operational costs are threatening the competitiveness of the country’s horticulture industry.
Appearing before the Departmental Committee on Finance and National Planning during submissions on the Bill, the Fresh Produce Exporters Association of Kenya (FPEAK) said multiple taxes, expensive freight charges and delays in Value Added Tax (VAT) refunds are placing sustained pressure on exporters.
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FPEAK Chief Executive Officer Hosea Machuki told the committee that Kenya risks losing ground to competing horticulture producers including Ethiopia, Egypt, Morocco and Colombia.
“Members, multiple taxes, high freight costs and crippling delays in VAT refunds are rapidly eroding local competitiveness against aggressive regional and global rivals such as Ethiopia, Egypt, Morocco and Colombia,” said Machuki.
He said the horticulture sub-sector—which includes flowers, fruits and vegetables—contributes five per cent of Kenya’s Gross Domestic Product (GDP), generates about KSh150 billion annually in foreign exchange earnings and supports nearly six million livelihoods.
To cushion the sector, FPEAK proposed the removal of excise duty on packaging materials, the introduction of a practical Electronic Tax Invoice Management System (eTIMS) compliance threshold for small-scale farmers and reforms to ease multiple taxation through seamless VAT offsets.
The association also called for imported paper used in packaging to be exempted from excise duty, arguing that neither Kenya nor the wider East African region currently manufactures the specific kraft paper required by exporters.
“Chair, we do not have a manufacturer for kraft paper packaging material within the country and the region. The available alternative is packaging made from sugar bagasse which is substandard and not fit for export products,” Machuki said.
During the session, Finance and National Planning Committee Chairperson Kuria Kimani asked the association to identify the exact Harmonized System (HS) codes for the imported packaging materials to enable lawmakers to determine the applicable tax treatment.
Committee members noted that during deliberations on the Finance Bill, 2024, some local manufacturers had indicated they had the capacity to produce kraft paper locally.
“Your Association needs to clarify the HS Code of the packaging material you are referring to, so we can establish the tax provision for that packaging material during consideration of your proposal,” Kimani said.
FPEAK argued that removing excise duty on imported packaging inputs would reduce production costs for local carton manufacturers and ultimately make Kenyan fresh produce more competitive internationally.
The association also asked lawmakers to establish a reasonable threshold for eTIMS compliance, saying current Kenya Revenue Authority requirements compel all businesses, regardless of turnover, to issue electronic invoices.
“Under the current guidelines, the Kenya Revenue Authority mandates all businesses regardless of turnover to issue eTIMS electronic invoices. We feel that forcing rural, small-scale farmers to immediately conform to complex eTIMS logistics for minor sales damages the supply chain,” Machuki said.
FPEAK proposed exempting transactions of up to KSh5,000 from mandatory compliance to shield smallholder farmers from excessive administrative requirements while maintaining their role in export supply chains.
To address liquidity constraints caused by delayed VAT refunds, the exporters proposed amending Section 47 of the Tax Procedures Act to allow automatic offsetting of overpaid VAT against other tax obligations.
They further called for the iTax system to be reconfigured to enable accumulated VAT refunds to offset Pay As You Earn (PAYE), Withholding VAT, Withholding Tax and final tax liabilities.
“This prevents the VAT refund bottleneck where licensed exporters accumulate massive credits leading to severe liquidity challenges,” the association stated.
FPEAK also appealed for broader cost-relief measures, including zero-rating agricultural inputs such as pest control products and fertilizers and reducing VAT on petroleum products from eight per cent to zero to lower production and transport costs.
Additionally, the association proposed expanding eligibility criteria for Special Economic Zones (SEZs) to allow established export packhouses to qualify based on demonstrated manufacturing expansion capacity rather than large greenfield land requirements.
In its closing remarks, FPEAK urged lawmakers to adopt the proposals, arguing that the measures would create a predictable, high-growth environment capable of driving national economic development.
