advertisement
Economy

Consumer price shock as traders apply new law

The sudden price increases caught many consumers — most of whom were heard complaining loudly in the supermarkets — unawares. Photo/File
The sudden price increases caught many consumers — most of whom were heard complaining loudly in the supermarkets — unawares. Photo/File  

A wave of price increases on Tuesday hit Kenya’s consumer goods market as traders included value added tax in the cost of goods that have traditionally been spared of the charge.

The levy, which is a product of the Value Added Tax (VAT) Act, 2013, came into effect on Monday, forcing manufacturers and traders to add the 16 per cent charge on the prices of goods.

The sudden price increases caught many consumers — most of whom were heard complaining loudly in the supermarkets — unawares.

The list of goods whose retail prices have risen by at least 16 per cent in the wake of the new law includes books, processed milk and mobile phones.

advertisement
 

The price of a 500 ml packet of milk shot from Sh45 last month to Sh52 in some of the supermarkets in Nairobi meaning households have to dig deeper into their pockets to access what is a key ingredient of the breakfast menu.

Consumers will also pay more to access their favourite newspapers beginning this morning after the publishers increased cover prices in line with the new tax charge.

The Nation Media Group on Tuesday announced that it had increased its cover prices by Sh10 to Sh60 for the flagship Daily Nation, Sunday Nation and the Business Daily.

These price increases are expected to add impetus to inflation pressure that has steadily risen in the past three months to a high of 6.67 in August.

Analysts at AIB Capital expect the new tax measures to push inflation from last month’s 6.67 to 10.17 at the end of this month.

“The new tax definitely widens the government’s revenue base but we expect a spike in inflation,” said Ted Macharia, an analyst with the firm.

“We expect the overall consumer price index to rise from 5.00 points to 145.30 points.” 

Consumer lobby, Cofek, responded to the price increases with a hard-hitting statement that accused President Kenyatta’s Jubilee government of reneging on its campaign promise of reducing the cost of living for ordinary Kenyans.

“Prices of consumer goods of acceptable standards are already way beyond expectation. The new tax measures have the effect of driving consumers to make difficult and risky choices at a time they are meant to enjoy the Jubilee government’s pledge of lower cost of living and doing business,” Cofek said in a statement signed by its secretary general Steven Mutoro.

The consumer lobby also hit out at MPs for allegedly abandoning consumers after receiving bribes from the Treasury.

“We pointed out all these issues to the parliamentary Committee on Finance, Trade and Planning. But the National Treasury bribed the MPs out of amendments by paying the Sh1.1 billion vehicle grants on the day the Bill was due for debate and voting. Many amendments lined up were equally shelved under mysterious circumstances,” Mr Mutoro said.

Cofek blamed the Treasury for the wave of confusion that hit the consumer markets on Tuesday saying it had suspiciously brought the controversial tax into effect in a rush and without putting in place mechanisms for a seamless transition.

Mr Mutoro said the confusion brought about by the rushed application of the new law meant the VAT Act, 2013 was bound to face more challenges than the noble intentions behind it.

Traders in Nairobi yesterday reported a dip in sales, saying many customers had walked out of their shops without buying any goods or reduced the number of items on their shopping lists upon learning of the price increases.

Thecoming into effect of the new levy on Monday coincided with the opening of schools, forcing parents to dig deeper into their pockets to buy key items such as text books that were removed from the list of the goods that are VAT-exempt.

“The number of customers has significantly dropped since we introduced the new prices,” said Mr Kirit Savani, the proprietor of Savani’s Bookshop in Nairobi.

Mr Savani said many customers had left his premises either without buying books on realising that the prices had changed.

“It appears that many consumers have not been following the VAT debate and were taken aback by the new prices,” he said.

The new tax has, for instance, increased the price of Oxford Learners’ Dictionary from Sh1,250 Sh1,450 while the price of a 120 page A4 exercise book has moved from Sh50 to Sh98.

Mobile phone dealers were among those hit hardest by the new tax measures with a number reporting that sales fell to zero on Tuesday.

“I have not sold a single phone since morning because customers are coming with the old prices in mind and simply walk away on learning that the phones now cost more,” said one dealer who did not want to be named for fear of scaring away his customers.

His price list showed that the Samsung chat phone, which until Sunday sold at Sh3,800 now costs Sh4,200.

A shocking aspect of the new tax law lay in the fact that traders increased the prices of items such as bread, which were left in the list of tax exempt goods.

Some tax experts backed the move linking it to the fact that manufacturers can no longer claim refunds for such goods as has been the case.

“These items have until last month been zero-rated and meaning the traders could claim refunds hence maintaining low prices,” said Nikhil Hira, a tax expert at consulting firm Deloitte.

Mr Hira said that though imposition of VAT on a large number of formerly tax exempt and zero-rated good would generate more revenue to the government, imposition of tax on some farm inputs was ill advised.

“The tax on some of the farm inputs is a dangerous move that will affect, mainly the small scale farmers, hence posing a threat to food security,” he said.

advertisement