Milk, maize flour prices to go up as new tax is charged

Kenyan consumers, struggling to cope with double digit inflation, will have to bear a fresh increase in food prices in the coming weeks if Parliament accepts the Treasury’s plan to remove tax exemptions on essential commodities.

Milk, cereals and edible oils top the list of consumer goods whose prices will rise by wide margins with the imposition of Value Added Tax (VAT) as proposed by Finance minister Njeru Githae in his Budget speech.

Milk processors said prices of dairy products will rise by equal margins once the VAT Bill is enacted into law. Grain millers promised to follow suit by passing the tax burden to consumers.

“The prices will go up, but not to the levels last seen during the drought,” said Peter Wasonga, marketing manager at Brookside Dairy.

VAT is charged at the rate of 16 per cent, and the prices are likely to rise by up to Sh6 per half a litre pouch.

The processors said the price increases could come as early as July 1 when the new fiscal year starts, but the VAT Bill is yet to be slotted for debate in Parliament.

“The VAT Bill still has a long way to go since it will have to be discussed by Parliament. We may see actual implementation next year,” said Steve Okello of PwC.

“Unlike the Finance Bill, which comes to effect at specified dates, the VAT Bill is being repealed and will have to go through the floor before it is approved,” said Peter Kinuthia of Ernst and Young.

A 500ml packet of milk is retailing at Sh35, down from between Sh45 and Sh50 in April when a prolonged drought hit parts of the country.

READ: Milk prices drop further as dairies fight for market turf

A two kilogramme packet of maize meal is selling at between Sh97 and Sh120, depending on the brand.

When the tax comes into force, a packet of maize flour could cost Sh16, rising to levels last seen in December 2008.

Diamond Lalji, the chairman for Cereals Millers Association (CMA), said the new rules would hurt the milling industry by discouraging consumers from buying sifted maize meal to avoid high costs.

“Any cost increases arising from the VAT Bill will be passed on to consumers,” Mr Lalji said on telephone.

The government hopes to collect Sh42 billion through imposition of VAT on nearly all consumer goods if Parliament backs the proposal to end tax exemptions.