Traders count losses from taxman’s new VAT ambush

Traders say they will adjust the prices of affected goods in the course of the week following the upfront introduction of VAT on goods that were previously exempt. Photo/File 

By GERALD ANDAE

In Summary

• The taxman on Monday issued notices declaring the same day as the effective date of collected VAT at the standard rate of 16 per cent on goods, including the staple maize and wheat products.
• This effectively denied the agents time to adjust their systems to accommodate the changes, implying they would pay from their pockets taxes on sales based on the old system.
• Consumers are the ones who will bear the burden of the new laws, unless the government intervenes.

The Kenya Revenue Authority appeared headed for a stand-off with its collection agents on Monday following the upfront introduction of Value Added Tax on goods that were previously exempt.

The taxman on Monday issued notices declaring the same day as the effective date of collected VAT at the standard rate of 16 per cent on goods, including the staple maize and wheat products.

READ: Tough time for consumers as Treasury rolls out VAT law

This effectively denied the agents time to adjust their systems to accommodate the changes, implying they would pay from their pockets taxes on sales based on the old system.

“KRA had given us an assurance that the new VAT was to take place after one month. What we are seeing now is an ambush from the government that has only subjected us to losses,” Longhorn Publishers managing director Musyoki Muli said.

He said the association of publishers would protest the start date to KRA.

“We cannot sell today because we have to configure our computers with the new VAT. This will have to take quite some time before we resume our normal operations,” says Mr Muli.

The Act was gazetted on August 30 and was required to be enforced within 30 days, meaning KRA had four weeks within which to start collecting the tax without disrupting businesses.

Publishers were not the only ones caught off-guard by the move with cereal millers, milk processors, gas dealers and grain growers saying they would adjust the prices of affected goods accordingly in the course of the week.

“Consumers are the ones who will bear the burden of the new laws, unless the government intervenes. We project that the consumption of wheat products will go down significantly,” said Mr Lalji.

Mr Lalji said the price of bread, which is still exempt, was likely to go up because manufacturers would no longer claim refunds on taxable raw materials used in baking bread.

“With the exemption, we will just pass the cost to the consumers, because we cannot claim the 16 per cent levy from the government, in essence, bread will still cost more,” he said.

He noted that to save the consumers from the high prices, the government ought to have zero-rated bread, allowing for input tax deductions.

He asked the government to abolish the VAT on wheat and zero-rate the 50 per cent duty that is charged on imported maize. Currently, the government is charging a 10 per cent duty on imported wheat.

Millers usually import 900,000 tonnes of wheat to satisfy demand with only 350,000 tonnes produced locally. The imports, according to Mr Lalji, could fall to 700,000 tonnes.