Traders defy order to reduce prices

The milk section at a supermarket in Nairobi. A spot check at Nairobi’s supermarkets Wednesday showed that the price of a 500 ml packet of milk was unchanged at Sh55. FILE 

By David Herbling,

In Summary

• A spot check at Nairobi’s supermarkets Wednesday showed that the price of a 500 ml packet of milk was unchanged at Sh55.
• The tax man on Tuesday broadened the definition of unprocessed milk to include pasteurised milk.

Retailers on Wednesday defied a directive by the Kenya Revenue Authority to remove the 16 per cent Value Added Tax on packaged milk, robbing consumers of Sh10 for every half litre.

A spot check at Nairobi’s supermarkets Wednesday showed that the price of a 500 ml packet of milk was unchanged at Sh55; a day after KRA issued the notice removing pasteurised milk from the consumption tax bracket.

“The notice takes immediate effect. We expect the prices of milk to come down as they had been increased,” said KRA senior deputy commissioner Kennedy Onyonyi.

The tax man on Tuesday broadened the definition of unprocessed milk to include pasteurised milk, yielding to pressure from President Uhuru Kenyatta and consumer lobby groups, saying that milk was never intended to be charged VAT.

Our survey showed that Uchumi’s outlet along Koinange Street was Wednesday charging VAT on the half litre pouch of New KCC fresh milk, which it was selling at Sh55. At Tuskys’ convenience store on Muindi Mbingu Street, the same brand of milk was retailing at Sh55 with the official receipt showing it was tax-exempt.

“We were waiting for recommended retail prices (RRP) from suppliers. Price change being effected,” said Francis Kiragu, marketing manager at Uchumi Supermarkets. KRA also clarified ‘ordinary bread’- which is exempt from VAT - as “breads which are sold for general consumption including white and brown bread,” meaning only bread primarily used in the catering industry is subject to the tax.

However, the price of bread has also gone up by as much as Sh7 per loaf, despite its listing in the VAT Act as tax-exempt, in what bread makers attributed to rising cost of raw materials and energy costs. Mini Bakeries, producers of Supa Loaf brand, has reviewed prices by Sh4 to Sh49 for a 400g loaf of bread.

“Prices have gone up because of increases in production costs, raw materials and labour costs. Fuel prices are up and our distribution costs have increased too. This is in no way related to VAT,” said Paul Kariuki, marketing manager at Mini Bakeries.

The DPL Festive bread is selling at Sh49 up from Sh44 a week ago. Thika-based bakery Kenblest said it was yet to review its bread prices.

“In an effort to shield consumers from the rising cost of living, our prices remain the same,” Kenblest said in a statement, adding that a 400g loaf should retail at no more than Sh41.

The sustained higher prices for milk and bread mean that Kenyan households will have to dig deeper into their pockets to put breakfast on the table.

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

The new VAT law took effect on September 2, triggering a fresh round of price hikes after it levied consumption tax on goods that were previously zero-rated. Kenyans are already paying more for essential goods and services such as cooking gas, electricity, exercise books, text books and mobile phones as they now attract a 16 per cent tax charge.

President Kenyatta last week directed KRA and the Treasury to publish regulations clarifying the VAT law – targeting milk and bread prices - due to mounting pressure from Kenyans over the increasing cost of living.

The move by the government to exempt processed milk and all types of bread is also meant to scuttle a plan by Cord legislators who had lined up amendments to remove VAT on packaged milk, electricity for domestic households, postal services, exercise books and text books.