Pressure mounts on government to ease VAT burden

 

By Herbling David, hdavid@ke.nationmedia.com

In Summary

• President Kenyatta orders publication of list of taxable items as MPs suspend business to discuss rising cost of living for the poorest.
• The President's directive came as meat prices rose, becoming the latest addition to wave of the price surges linked to the consumption tax.
• The effect of the legislation on food prices has intensified demands that essential goods such as milk, bread, electricity, animal feeds and fertiliser be returned to the list of zero-rated prod

The full weight of the political pressure arising from the recent introduction of value added tax (VAT) on key consumer goods began to be felt Tuesday as President Uhuru Kenyatta responded to calls for a repeal of the law with a directive that the Treasury publish a full list of the affected goods.  

Speaking a day after the opposition Cord announced plans to introduce amendments to the VAT Act 2013, President Kenyatta said that although the government’s intention was to simplify the tax regime and increase its revenues, the market had been infiltrated by unscrupulous traders who are taking advantage of the changes to overcharge consumers for essential commodities.

“We are sensitive to the vulnerable in our country and that is why we have exempted basic commodities like milk, flour and bread from VAT,” Mr Kenyatta said in apparent response to rising criticism that the new tax is a burden on the poor.

The new legislation, which took effect on September 2, introduced a 16 per cent levy on essential goods that were previously zero-rated, including milk, cooking gas, electricity, exercise books, text books and mobile phones.

A 400g Supa Loaf mini bread is now retailing at Sh49, up from Sh42.

(READ: Households face deeper VAT pain as egg, bread prices up)

The distinction between zero-rated and VAT-exempt goods is at the heart of the ongoing battle between the Treasury, which insists that there should be no change in the prices of tax exempt goods, and traders.

Manufacturers of consumer goods such as bread and milk argue that their removal from the list of zero-rated items to the tax exempt category means tax refund claims can no longer be made for the increased VAT cost incurred with purchase of inputs – forcing them to pass that cost on to the consumer. 

President Kenyatta’s directive came as meat prices rose, becoming the latest addition to wave of the price surges linked to the consumption tax.

(READ: President Uhuru Kenyatta directs Treasury to clarify VAT law)

The effect of the legislation on food prices has intensified demands that essential goods such as milk, bread, electricity, animal feeds and fertiliser be returned to the list of zero-rated products to lower the cost of living for the poorest households.

A kilogramme of chicken is now retailing at Sh460 compared to an average of Sh385 last week, in what is attributed to the increase in the prices of animal and poultry feed after their removal from the list of zero-rated items.

Kenchic on Tuesday confirmed that it had increased the prices of its poultry products including whole chicken, thighs, drumsticks, wings and sausages.

An official at Kenya Meat Commission said the firm will on Wednesday review prices for all its products including beef, lamb, mutton and value added products such as beef burgers, meat balls and sausages.

MPs Tuesday suspended normal house business to debate the rising cost of living setting the stage for possible amendment of the law to return essential goods to the list of items that are zero-rated for VAT.