Tough time for consumers as Treasury rolls out VAT law

Shoppers at Nakumatt Mega along Mombasa Road in Nairobi on March 3, 2013. FILE
Shoppers at Nakumatt Mega along Mombasa Road in Nairobi on March 3, 2013. New VAT law comes into effect on Monday. FILE 

A general rise in the cost of consumer goods is expected beginning this week as the newly enacted Value Added Tax (VAT) law comes into force.

President Uhuru Kenyatta assented to the Bill, which Parliament passed before it went on recess last month, on August 14 paving the way for its gazettement on August 23.

Treasury secretary Henry Rotich set September 2, 2013 as the commencement date in a notice published in the Kenya Gazette last Friday.

The Treasury expects to collect Sh10 billion more in the current fiscal year from the new VAT measures.

But the new law has also come as a big relief to both the Treasury and the taxman, having reduced the amount of monthly refund claims by half to about Sh600 million.


The Treasury has been allocating lower amounts of cash than is required to meet the total refund claims, causing a huge build-up over the years. For instance, the Treasury set aside Sh15 billion against Sh28 billion in accumulated refund claims as at the end of July.


The refunds arose from the law that allowed manufacturers of zero-rated goods to claim back VAT paid with the purchase of inputs.

The new law has, however, trimmed the list of exempted and zero-rated products to a small list that includes unprocessed maize, processed maize meal, unprocessed milk, bread, some medicines and seeds.

These goods made it to the exemption list following intense lobbying by consumer groups and manufacturers concerned about affordability to low-income households.

Key consumer products such as processed milk that were previously zero-rated or exempted are now subject to the 16 per cent VAT.

The taxman is expected to face numerous challenges in the enforcement of the new law as companies fine-tune their accounting systems to determine what is to be remitted and its timing.

Some may need the assistance of tax experts in determining where they fall in the three categories of exempted, zero-rated or taxable goods and services.

Meanwhile the Kenya Revenue Authority (KRA) has published a notice introducing new generation excise stamps on September 1. The stamps, whose details can be transmitted via GPS to KRA computers, are expected to reduce the number of fake stamps in the market.

KRA inspectors will scan stamps in use in any particular outlet and transmit the information electronically back to the office and determine whether they are real or fake.

Some of the manufacturers affected by the new requirement said they were still consulting the revenue authority about implementation, which they described as complex.


“Although we are in support of the spirit behind the change from old generation excise stamps, the transition poses serious logistical challenges to   distributors and retailers,” said Keith Obure, communications & CSR manager at British American Tobacco (BAT).

Among the questions that have arisen is who would meet the cost of affixing the new stamps if the traders located out of Nairobi have to bring back the goods to the city.

Mr Obure said BAT was working with KRA to explore opportunities of managing the exercise with little disruption to its supply chain.

“(We) are optimistic we shall reach an amicable solution that is mutually beneficial,” said Mr Obure.

Other companies said they did not have much merchandise that do not bear the new stamps in traders’ hands.

“Since the notice to move to the new generation was given four months ago, we have been preparing for it. We have been implementing the new directive and we don’t have much merchandise out there that does not carry the new stamps,” said Tabitha Karanja, the CEO of Naivasha-based Keroche Breweries.

The directive largely affects the manufacturers of wines and spirits as well as cigarettes that contribute more than three-quarters of excise duty revenue.

KRA says that billions of shillings in revenue is being lost because some manufacturers have been using fake stamps. The new stamps are expected to ensure that such manufacturers are charged with tax evasion.