Proposal to cut prices of maize and wheat flour

Maize and wheat flour shelf prices will drop if MPs adopt proposals to amend the Value Added Tax (VAT) to allow for millers to reclaim tax from raw materials used in the manufacture of the two commodities.

The National Assembly’s Finance and National Planning committee wants the Finance Bill, 2018 amended to change the status of maize (corn) flour, cassava flour, wheat or meslin flour and maize flour containing cassava from exempt to zero rate.

Zero rate allows manufacturers to claim VAT from raw materials used in making their products while exempt does allow tax refund, which normally leads to rise in commodity prices.

The Tax Laws (Amendment) Act, 2018 changed the status of maize, cassava, wheat and maize flour from taxable status (zero rate) to exempt.

“The second schedule to the VAT Act, 2013 by inserting…the supply of maize (corn flour), cassava flour, wheat or meslin flour and maize containing cassava four by more than 10 per cent in weight,” the committee said in amendments to the Finance Bill, 2018.

The committee made the changes following a petition by the Cereal Millers Association (CMA)—millers lobby.

The CMA told the committee reviewing the Finance Bill, 2018 that the changes in taxable status from zero rate to exempt had prevented millers from passing on the full impact of cheap maize in the form of affordable flour.

READ: Setback for manufacturers in push for zero-rate on raw material imports

The association said the change in law could slow down the grain milling business and ultimately hurt farmers who feed the millers with wheat and maize.

“In view of the above and considering that manufacturing and agro processing are key pillars of the Big Four agenda of this government, they proposed amendment of the Second Schedules of the VAT Act, 2013 to zero rate wheat and maize flour,” the committee said in its report to the House.

The proposal to lower the millers’ tax burden comes at a time when maize flour has dropped to a six-year low on increased supply of maize in the market.

Most brands of maize flour are now trading at less than Sh90 in retail outlets, coming as a relief to consumers.

The last time the price of maize flour touched this low was in 2012, according to statistics from Kenya National Bureau of Statistics. The supply of grain has improved in the country following the onset of harvesting of short season crop from some parts of the country as well as an increase in cross boarder imports from Uganda.

Millers reckon that a lower tax burden will offer tem room to make further cuts.