Bread, financial transactions spared from VAT in U-turn


A supermarket attendant arranges loaves of bread on a shelf at a supermarket.

Photo credit: File | Nation Media Group

Bread and financial transactions, including credit and debit card issuance as well as foreign exchange dealings, have been spared from value-added tax in a U-turn from initial proposals contained in the Finance Bill 2024.

Excise duty on mobile-money services by cellular phone providers has also been retained at 15 percent even as duty on telephone and data services, fees charged for money transfer services by banks rises to 20 from 15 percent.

The reversal has come in the backdrop of public participation on proposed revenue raising measures for the new fiscal year which has been amid uproar on higher taxes.

The Finance and National Planning Committee has deemed the products as essential retaining the product’s VAT status as zero-rated and exempt respectively.

“The committee observes that bread is a basic commodity used in many households and imposing VAT on it would increase its cost beyond the affordability of many Kenyans,” noted Chair to the Finance Committee and Molo MP Kuria Kimani.

Players in the financial sector had opposed the VAT hit on services with the Kenya Bankers Association (KBA) noting the move would increase the cost of banking to customers and hamper financial inclusion efforts, affecting low-income individuals and small businesses.

The proposed VAT on bread had meanwhile drawn wider criticism from the public even as the exchequer defended the move noting the incentive had failed to benefit the target low-income households group.

Other goods and services spared from VAT include inputs and raw materials supplied to manufacturers of agricultural and pest control products, agricultural pest control products, transportation of sugarcane from farms to milling factories and the supply of locally assembled and manufactured mobile phones.

The move to spare VAT on the products and services goes against the grain of the Medium Term Revenue Strategy by the National Treasury which seeks to trim revenues lost to incentives and subsidies, also known as tax expenditures.

According to the exchequer, all finished goods currently exempt would be subjected to VAT while zero-rated finished goods and services would be exempt from VAT.

Only goods and taxable services meant for export would be zero-rated.

The Finance and National Planning Committee has however switched up on the Treasury by moving its own guiding principles on VAT zero-rating and exemptions.

“With regard to the provision of VAT, the committee was guided by the following policies; to zero rate only the most critical consumption items in most households, to exempt agricultural inputs for the manufacture of medical needs, to protect the financial sector by limiting VAT on services, subject to tax goods and services where value is added in the production process and to exempt certain inputs so as to promote local industries,” Hon. Kimani added.

Kenya has two rates of VAT; the standard rate set at 16 percent and a zero rate applicable to a specified list of supplies such as ordinary bread.

A third category of VAT exists in the form of exempt supplies which are not subject to VAT but whose suppliers can also not claim for input taxes.

Zero-rated supplies such as bread are not subject to VAT while their manufacturers can claim refunds on input taxes paid.

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