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"id": 252935,
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"speaker_name": "Mr. Oparanya",
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"legal_name": "Wycliffe Ambetsa Oparanya",
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"content": "Mr. Deputy Speaker, Sir, I beg to move:- THAT, noting that COMESA's four-year safeguard measures affecting the local sugar industry expire on 29th February, 2008 and that the sugar industry shall be liberalized thereafter; this House urges the Government to eliminate taxes affecting the sugar industry and put structures in place that will improve the fields of cane plant and efficiency in local sugar milling factories in order to enable locally produced sugar to compete favourably with imported sugar for the benefit of the sugar-cane farmers. Mr. Deputy Speaker, Sir, as you might be aware, the sugar industry is very important in this country. The industry is important in that it supports 6 million people directly or indirectly, more so in the western part of this country. The sugar industry employs about 500,000 people directly or indirectly. The industry earns the country foreign exchange and, at the same time, saves the country foreign exchange. The sugar industry is also a major contributor to the Gross Domestic Income (GDP) of this country. In fact, it contributes Kshs14 billion annually. It also, significantly, contributes to Government revenue directly through taxes. This Motion is requesting the Government to remove taxes affecting the sugar industry, so that at the expiry of the COMESA safeguard measures, locally produced sugar can compete favourably with imported sugar. Mr. Deputy Speaker, Sir, since the formation of COMESA, we were given two years to re- organise our sugar industry but, every time, we seek extension. After 29th February, 2008, COMESA countries will be free to bring sugar into this country without paying any taxes. As you are aware, within the COMESA region, there are countries which have more developed technologies than Kenya. I have in mind countries like Egypt. We know that the safeguard measures will expire on 29th February, 2008, but the Government has done very little to ensure that we improve on production of sugar. Mr. Deputy Speaker, Sir, if I may give statistics, the Government owns 74.2 per cent of Muhoroni Sugar Company; 95.4 per cent of Chemelil Sugar Company; 20 per cent of Mumias Sugar Company; 98 per cent of SONY Sugar, and 93.3 per cent of Nzoia Sugar Company. You can see that the major controller in the sugar industry is the Government. The Government is the main shareholder and at the same time the regulator. So, the Government should make sure that the production of sugar in this country is improved. The Minister for Agriculture set up a commission in 2003 to come up with recommendations on how to revitalise the sugar industry. There were quite a number of good suggestions, but unfortunately, since the Government is the major shareholder in the industry, very little is being done. I am worried because come 2008, the sugar industry in this country will collapse unless the Government comes up with strict measures to avert the situation. We have less than two years to go. Mr. Deputy Speaker, Sir, the sugar companies which are owned by the Government are insolvent. They have high debts. In fact, as we speak, their debt is over Kshs20 billion. We should privatise the sugar industry in order to reduce the cost of production. These debts attract interest, which is part of the operational cost, and this increases the cost of production. In order to attract investors in the sugar industry, it is important for the Government to write off all the debts that the sugar companies owe. You will find that most of these debts are owed to Government-owned banks, for example, the Kenya Commercial Bank and the National Bank of Kenya. In fact, the 528 PARLIAMENTARY DEBATES April 19, 2006 loans were given on the strength of guarantees by the Government. Debts in the coffee and tea industries were written off. Debts in the co-operative movement were also written off. Why not in the sugar industry? The other problem in the sugar industry is the out-dated technology. The Government as the main shareholder in the sugar industry should make sure that technology in the sector is improved, so that there is efficient production of sugar and the supply constraints are minimised. Mr. Deputy Speaker, Sir, there is mismanagement in the sugar industry. However, I would like to thank the Minister because for the last two years, the management of the sugar industry has improved. Professionals have been employed in the industry and we hope that the Minister will maintain that, so that come 2008, the management of the sugar industry will have improved significantly. The mismanagement within the sugar industry has made the cost of production to be very high. The accounts of the Government-owned sugar companies have not been audited for several years. If they have been audited, they lag behind several years. These companies have professionals who can make sure that the accounts are prepared and audited on time, so that any financial weakness is detected early enough and corrective measures are taken. Mr. Deputy Speaker, Sir, come 2008, sugar will flow into this country from the COMESA countries. If you look at the East African Custom Union Management Act, you will find that sugar can flow freely from Tanzania, Uganda, Burundi and Rwanda. We are lucky because these four countries do not produce enough sugar to export to Kenya. If they were producing enough sugar, we would be in a real problem. Within the sugar industry, we have the corporation tax, which is 32 per cent; the Value Added Tax (VAT), which is 16 per cent; the Sugar Development Levy, which is 7 per cent, and the cess, which is 1 per cent. How would an industry survive with all these taxes? If we have to compete efficiently, these taxes should be reviewed. If you want to improve a particular industry, you should focus on taxation. Fiscal policies are used to make sure that a particular sector thrives for the benefit of the common man. Mr. Deputy Speaker, Sir, within the next two years, the corporation tax should be suspended. We have been hearing that the sugar companies are now making huge profits. They are making huge profits and in the process, they are paying income tax to the Government. When this income tax is paid, it is not taken back to those areas to improve the sugar industry. I am seeking that the corporation tax be suspended for, at least, two years in the sugar industry. For example, last year, Mumias Sugar Company paid a corporation tax of Kshs1.6 million. If Kshs1.6 million is ploughed back to the region, it would make a difference. Sugar is food. Under the Value Added Tax Act, if a commodity is a basic necessity, for example, tea, coffee and sugar, it should be zero- rated. All the inputs in the sugar industry should be zero-rated, so that the companies concerned should be able to claim back the VAT paid on all the inputs. In the process, the production cost will go down. Mr. Deputy Speaker, Sir, the Sugar Development Levy is payable at 7 per cent. In this country, we collect about Kshs200 million per year through this levy. This is roughly Kshs1.4 billion per year. This is a lot of money that is supposed to be ploughed back to the region. Previously, the Sugar Development Levy has been misused. I am seeking to have the Sugar Development Levy reduced. It should only be charged on the imported sugar and not on the locally produced sugar. Mr. Deputy Speaker, Sir, since we are now going to increase the allocation to the Constituencies Development Fund (CDF), which we can use to develop the infrastructure in our constituencies, the money paid as cess of 1 per cent to the Ministry of Local Government should be abolished so that the sugar industry can retain this money for development. In the past, the Sugar Development Levy has been misused and those people who have misused it are still walking April 19, 2006 PARLIAMENTARY DEBATES 529 around and no action has been taken against them. Those people who looted the Sugar Development Levy should be made to account for the money. This is money which is due to the farmers and they should enjoy it. Mr. Deputy Speaker, Sir, the other issue which should be undertaken to ensure that production costs are lowered is to make sure that there is proper research and extension services to the farmers. At the moment, there is no research. The money that is allocated within the Sugar Development Levy for research is not used properly. In the last three years, more than Kshs200 million was allocated for research in Muhoroni and nothing has happened to date. Mr. Deputy Speaker, Sir, it is important to note that if we want to develop the sugar industry, we must have a proper credit system to the farmers. We have small-scale farmers who have no access to credit facilities. In the Budget for last financial year, the Government allocated Kshs2 billion to the Agricultural Finance Corporation (AFC) to lend to farmers, including sugar- cane farmers. The conditions which have been set in order for one to obtain this loan are quite difficult. They require that one must have more than 20 acres of land and a clean title deed. How can we develop the sugar industry with those conditions? Farmers with even half-an-acre or two acres of land should have access to the funds. Mr. Deputy Speaker, Sir, farmers have no say regarding the price of inputs which are given to them. They are given seeds and fertilizers. The companies plough and harrow the farms for them and they have no control over the pricing. There is no business you can do unless you either control the cost of production or the pricing. You must be in charge of one of them for you to make a profit, but here is a business where the farmers have no control over anything. They have no control over the cost of production or the pricing. So, this is an industry where the farmer has no control on anything. How are we going to reduce the production cost if the farmers do not control over one of the two? Either they have control over the final pricing of the sugar-cane or the production costs. The farmer takes everything as given! How are we going to help the farmers? How are we going to lower the cost of production? Mr. Deputy Speaker, Sir, it is important that the Sugar Development Levy is used efficiently. The Act stipulates properly what percentage should go to administration, what percentage should go to sugar development, what percentage should go to the factory, and what percentage should go to the outgrowers. This has not been happening. In the process, we have companies called outgrowers companies, like Mumias Outgrowers Company (MOCO), which are supposed to be mediators between the millers and the sugar-cane farmers. The outgrowers companies themselves are mismanaged and insolvent."
}