Muthoni Gitonga has seen her shopping basket, lifestyle and social life change in recent weeks as she struggles to balance the family budget in the wake of last month’s imposition of value added tax on a wide range of consumer goods.
The family no longer goes out as much and Mrs Gitonga has instead chosen to serve her two children porridge in the mornings, dropping cereals that meant more milk consumption.
The cost of her shopping for basic household goods rose to Sh14,000 in September from about Sh9,000 the previous month – adding more than Sh5,000 to the tab.
“Slowly things have become so expensive. I have had to cut down on going out, the coffee and the children’s treats because I have my eyes on the mileage,” she said in an interview with the BD Life.
She and her husband are parents of two young children in private school, own two cars and live in a Nairobi suburb. The family’s worries and quest to cut spending have dominated many households since the new VAT law came into force last month.
Enforcement of that law, beginning September 2, saw the introduction of 16 per cent VAT on a wide range of consumer goods that were previously exempted and zero-rated – sending prices skyrocketing by the highest margin in the past 15 months.
The cost of key items such as milk, bread, petroleum, electricity, books, holidays rose even as the government moved in to clarify that some retailers had jerked up prices illegally.
The new tax measures are expected to boost government’s revenues by more than Sh10 billion in the current financial year. The tax on milk has since been pulling the price of 500ml packet down to Sh45 from a high of Sh55.
“It’s a small relief,” said Mrs Gitonga.
Analysts expect the rise in the cost of living to cross the double digits line by the end of the year but the surge is already hurting many families. Inflation rose to 8.29 per cent in September from 6.67 per cent in August.
Patrick Muya, the chief executive of Buffet Park Limited, said in times of high inflation they see a loss of some customers with consumption going down. However, sometimes he gains new customers who previously frequented higher-end establishment.
His company runs Buffet Park, Tamasha, Guava and Malazi Bed and Breakfast. For now Mr Muya is still reviewing the September books to see the impact of the VAT law on the business.
“We haven’t reacted, we are still waiting to analyse the impact. There is a range of cost increase we can absorb but if it’s too big we shall pass it on,” he said. “People will still come but will reduce consumption.”
San Valencia’s finance manager said the cost of production had gone up, but in this difficult environment it was hard to pass on the extra cost to consumers.
The company has seen its restaurant most affected as it relies on walk-in clients, while its corporate business is still stable. “They will run away,” he said. “We are forced to absorb it. But we cannot keep on this for long, we will have to increase.”
The new tax will see parents have to dig deeper in their pockets to buy books following the increased price on the items, which were previously zero-rated.
Recently speaking at the Maktaba Awards Irene Kibanti, a member of Kenya Library Association, said the law made books more pricy, beyond the reach of many Kenyans, which would discourage reading. Also affected is the price of newspapers, which went up by Sh10 to Sh60.
The law also increases the cost of going on holiday, especially going on game drives. The Act introduces VAT on park and reserves entry fees as well as on transport in the sector leading to service providers increasing the price of airport transfers – in the city and game drives.
“It will cost more to book holidays through tour operators due to the introduction on VAT,” said the chief executive of Kenya Association of Tour Operators (KATO), Fred Kaigua.
“Previously game drives and airport transfers didn’t attract VAT but now they do. The cost is being pushed to the tourist,” he said.
Beyond the VAT Act there are other laws and measures by the government have led to the man on the street ponder their lifestyle and social life. The price of keg beer went up this week following fresh tax regulations introducing excise tax.
The beer was previously exempted from excise tax but now attracts a 50 per cent tax, which will be passed on to consumers.
This comes after a price increase, in July, by East Africa Breweries Limited (EABL) on its beers. The prices of spirits remained unchanged, but with increased pressure on budgets retailers are not sure of consumption.
Mr Muya said the July increment by the brewer impacted business, “the increase was sharp, there was an effect on consumption.”