Traders say they will adjust the prices of affected goods in the course of the week following the upfront introduction of VAT on goods that were previously exempt. Photo/File
What you need to know:
The taxman on Monday issued notices declaring the same day as the effective date of collected VAT at the standard rate of 16 per cent on goods, including the staple maize and wheat products.
This effectively denied the agents time to adjust their systems to accommodate the changes, implying they would pay from their pockets taxes on sales based on the old system.
Consumers are the ones who will bear the burden of the new laws, unless the government intervenes.
The Kenya Revenue Authority appeared headed for a stand-off with its collection agents on Monday following the upfront introduction of Value Added Tax on goods that were previously exempt.
The taxman on Monday issued notices declaring the same day as the effective date of collecting VAT at the standard rate of 16 per cent on goods, including the staple maize and wheat products.
This effectively denied the agents time to adjust their systems to accommodate the changes, implying they would pay from their pockets taxes on sales based on the old system.
“KRA had given us an assurance that the new VAT was to take effect after one month. What we are seeing now is an ambush from the government that has only subjected us to losses,” Longhorn Publishers managing director Musyoki Muli said.
He said the association of publishers would protest the start date to KRA.
“We cannot sell today because we have to configure our computers with the new VAT. This will have to take quite some time before we resume our normal operations,” says Mr Muli.
The Act was gazetted on August 30 and was required to be enforced within 30 days, meaning KRA had four weeks within which to start collecting the tax without disrupting businesses.
Publishers were not the only ones caught off-guard by the move with cereal millers, milk processors, gas dealers and grain growers saying they would adjust the prices of affected goods accordingly in the course of the week.
“Consumers are the ones who will bear the burden of the new laws, unless the government intervenes. We project that the consumption of wheat products will go down significantly,” said Mr Lalji.
Mr Lalji said the price of bread, which is still exempt, was likely to go up because manufacturers would no longer claim refunds on taxable raw materials used in baking bread.
“With the exemption, we will just pass the cost to the consumers, because we cannot claim the 16 per cent levy from the government, in essence, bread will still cost more,” he said.
He noted that to save the consumers from the high prices, the government ought to have zero-rated bread, allowing for input tax deductions.
He asked the government to abolish the VAT on wheat and zero-rate the 50 per cent duty that is charged on imported maize. Currently, the government is charging a 10 per cent duty on imported wheat.
Millers usually import 900,000 tonnes of wheat to satisfy demand with only 350,000 tonnes produced locally. The imports, according to Mr Lalji, could fall to 700,000 tonnes.
The VAT will see the average price of milk go up to Sh52 from Sh45 per 500 millilitre sachet even as processors say the tax has tilted the playground in favour of unregulated raw milk sales.
“Hawkers will enjoy high demand of the unprocessed milk from customers seeking the commodity at low price,” Buzeki Dairy Limited managing director Kiprotich Bundotich.
The company processes Molo Milk.
Milk
The VAT on processed milk is coming in the backdrop of a looming shortage that has already seen the price of milk go up by between Sh5 to Sh10.
“The cold season has contributed to the drop in milk volumes but we are sharing the little there is with hawkers, leaving us with very little volumes to process,” Mr Bundotich said.
Buzeki has a processing capacity of 160,000 litres but is now handling 100,000 litres.
A survey in several outlets in Nairobi Monday morning showed that many outlets had not adjusted to the new prices with New KCC managing director Kipkirui Langat saying the company would effect the changes in the next five days.
Cooking gas, electricity, exercise books and mobile phones will also attract a 16 per cent tax charge. Less than 200 kilowatt hours of electricity were until yesterday VAT exempt while units above this threshold were charged VAT at 12 per cent.
Fertilisers, farm chemicals, computer hardware and software are among other items that were exempted from VAT but are now under the net.
Fertilizer Association of Kenya chairman Eustace Muriuki said the cost of the input would increase by more than 16 per cent because transport costs would no longer be claimed as refunds from the government.
“Farmers are dealing with challenges such as the increase in the price of diesel. Levying 16 per cent tax on farm inputs is simply killing the industry and jeopardise food security.
Mr Muli said the new levy will affect many public schools that rely on credit to acquire the required books.
“We give our books to schools on credit as they await to get funds from the government to clear the debt. The new move simply means that we will no longer sell our books on credit,” he said, noting that sometimes it took up to six months for schools to settle the debt.
Publishers would in the long term also pass other additional charges to their customers, on top of the 16 per cent VAT, especially those arising from printing overheads.
