Tough time for consumers as Treasury rolls out VAT law

Shoppers at Nakumatt Mega along Mombasa Road in Nairobi on March 3, 2013. New VAT law comes into effect on Monday. FILE 

By GEOFFREY IRUNGU

In Summary

• President Uhuru Kenyatta assented to the VAT Bill on August 14 paving the way for its gazettement on August 23.
• Treasury secretary Henry Rotich set September 2, 2013 as the commencement date in a notice published in the Kenya Gazette last Friday.
• The Treasury expects to collect Sh10 billion more in the current fiscal year from the new VAT measures.

A general rise in the cost of consumer goods is expected beginning this week as the newly enacted Value Added Tax (VAT) law comes into force.

President Uhuru Kenyatta assented to the Bill, which Parliament passed before it went on recess last month, on August 14 paving the way for its gazettement on August 23.

Treasury secretary Henry Rotich set September 2, 2013 as the commencement date in a notice published in the Kenya Gazette last Friday.

The Treasury expects to collect Sh10 billion more in the current fiscal year from the new VAT measures.

But the new law has also come as a big relief to both the Treasury and the taxman, having reduced the amount of monthly refund claims by half to about Sh600 million.

(READ: New VAT law set to reduce refund claims by Sh600m)

The Treasury has been allocating lower amounts of cash than is required to meet the total refund claims, causing a huge build-up over the years. For instance, the Treasury set aside Sh15 billion against Sh28 billion in accumulated refund claims as at the end of July.

Households

The refunds arose from the law that allowed manufacturers of zero-rated goods to claim back VAT paid with the purchase of inputs.

The new law has, however, trimmed the list of exempted and zero-rated products to a small list that includes unprocessed maize, processed maize meal, unprocessed milk, bread, some medicines and seeds.

These goods made it to the exemption list following intense lobbying by consumer groups and manufacturers concerned about affordability to low-income households.

Key consumer products such as processed milk that were previously zero-rated or exempted are now subject to the 16 per cent VAT.

(READ: Milk and books to cost more as VAT Bill signed into law)

The taxman is expected to face numerous challenges in the enforcement of the new law as companies fine-tune their accounting systems to determine what is to be remitted and its timing.

Some may need the assistance of tax experts in determining where they fall in the three categories of exempted, zero-rated or taxable goods and services.