House team rejects Mbadi bid to remove VAT on electricity

Parliament has rejected nearly a third of the items that Suba MP John Mbadi wanted exempted from the value added tax.

The decision means prices of many goods and services that rose steeply after the government introduced a 16 per cent tax on them last September will remain unchanged.

Households consuming less than 200 kilowatt hours of electricity monthly are, for instance, going to continue paying for power at the current rates after it was removed from the list of tax exempt items.

“The committee felt that supply of electricity to households consuming this amount of power involves the middle class who can pay for the same,” said Ainamoi MP Benjamin Lang’at who chairs Parliament’s Finance, Planning and Trade Committee that made the decision.

“Besides, exempting this service from taxation would amount to loss of Sh5 billion in revenues,” he said. 

Mr Mbadi also lost the quest to have credit reference bureau services, sanitary and pest control services provided to households, supply of water drilling services and supply to the Rural Electrification Authority exempted from the consumption tax.

A proposal to have postal services removed from the list of items that qualify to be charged VAT was also defeated on grounds that there are so many alternatives to postal services such as emails that consumers can use.

Manufacturers of pharmaceutical products, small aircraft operators, specialised solar equipment dealers, air ticket agents, sugar and tea farmers, however, got a reprieve after the MPs approved their exemption from the 16 per cent tax imposed under the VAT law that came into force on September 2, 2013.

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

The Suba MP also succeeded in exempting fishing nets of man-made textile materials, mosquito nets, milk and cream that are neither concentrated or containing added sugar nor other sweetening matter from the tax.

Attempts to exempt water drilling services, rural electrification and ambulance services from the tax also failed with the committee arguing that the services are mostly offered by the government.

Equally removed from the list of items that will not be charged consumption tax are coloured milk and cream, concentrated or containing added sugar or other sweeteners.

“This amendment is about extending the exemption list beyond ordinary milk to coloured milk and cream. We agreed that only basic items that have an impact on the lives of the common man be exempt but the rest should attract VAT,” Mr Lang’at said.

Mr Mbadi also failed to convince MPs to remove taxation on crisp bread which the committee said is not consumed by the mwananchi.

“Even Mr Mbadi agrees that this is an expensive category of bread which only the rich can afford,” he said.

The committee also rejected proposals to include materials, waste, residue and by products used in preparation of animal feeds and insecticides, fungicides from the list of exempt items, noting that the principal Act had already exempted them.

The committee, however, introduced new exemptions on specialised solar equipment and accessories, including solar water heaters and deep cycled-sealed batteries which are exclusively used to store solar power, arguing that it would help connect arid areas to power.

Also exempted are inputs or raw materials (either procured locally or imported) and supplied to pharmaceutical manufacturers in Kenya for purposes of making medicaments as approved by the Treasury in consultation with the Health ministry.

The Langat committee also included air ticketing services supplied by travel agencies on the list of exempt items “to protect local industry from unfair competition from rivals in the region.”

Small aircraft and aeroplanes of unladen weight not exceeding 2,000 kg are exempted from taxation but those weighing above 2,000 kg and that are currently exempt will attract 16 per cent VAT.

READ: Light aircraft operators want spare parts exempted from 16 per cent VAT

The committee argued that exempting food preparations for infants, unprocessed green tea and sugarcane from taxation would clarify taxation in the sectors.

Mr Mbadi’s Bill had sought to widen the list of goods and services exempt from taxation to cushion low-income households from runaway prices of basic commodities.

MPs Millie Odhiambo (Mbita), David Ochieng (Ugenya) and Lati Lelelit (Samburu West) opposed the committee’s decision to remove some items from the list of exempted goods and services.

“Milk and cream containing added sugar is like a supplement. There are children suffering in refugee camps and we should retain this category as exempt,” said Mr Ochieng.

Ms Odhiambo urged the committee to exempt ambulances and hearses from the tax, saying purchase of vehicles to supplement government ones had been hampered by prohibitive VAT costs.