VAT reform heralds era of higher flour, power prices
Shoppers at a Nairobi supermarket. Prices of foodstuffs, electricity and books will go up once the VAT Bill 2011 is passed into law. The Bill proposes to charge raw materials, previously spared consumption taxes, the standard rate of 16 per cent VAT, automatically pushing up the prices of essential commodities. Photo/FILE
Consumers face a fresh upsurge in inflation once value added tax (VAT) exemptions for some essential commodities and services are phased out under the proposed VAT Act overhaul.
Prices of foodstuffs, electricity and books will go up once the VAT Bill 2011 is passed into law.
The Bill proposes to charge raw materials, previously spared consumption taxes, the standard rate of 16 per cent VAT, automatically pushing up the prices of essential commodities.
Cereal Millers Association (CMA) chairman Diamond Lalji said he had written to the minister for Finance asking for further consultations on the effects of introducing the standard VAT rates on raw materials to avert a price crisis.
The proposals, if adopted without the amendments, will further erode consumer purchasing power, Mr Lalji warned.
He said the Bill will affect the cost of cereal inputs, manufacturing and eventually flour prices.
“Consumers will be the ultimate losers in these taxation as millers will have no choice but to pass the additional costs to them or pull out of the market if price controls will be used to suffocate them further,” said Mr Lalji.
The Ministry of Finance has the authority to pass amendments on the proposed VAT Bill before tabling it for discussion in Parliament to ensure it reflected the needs of majority of Kenyans who are grappling with the high cost of essential commodities, he said.
In his 2011/2012 Budget presentation, Finance minister Uhuru Kenya promised to publish a new VAT law for public scrutiny that could see an adjustment to the VAT rates for various products.
Mr Lalji said frequent rises of fuel charges had affected millers’ production costs and increased tax for raw materials.
Zero-rating of grain products, he said, was the best way to push prices down as tax incentives remained critical in promoting the agricultural sector and ensuring that food remains affordable.
“The millers propose that the current zero-rating be maintained especially for chemical and mineral fertilisers and the transport of unprocessed agricultural produce to markets instead of the proposed 16 per cent,” said Mr Lalji.
They said electricity VAT charges should remain at 12 per cent as opposed to the proposal to have it raised to 16 per cent. Maintaining the current rate would stabilise operational costs.
Publishers are also opposed to the taxation proposals saying they will increase the cost of books.
Kenya Publishers Association chairman Lawrence Njagi said subjecting imported paper to taxation when other East African countries enjoyed zero-rated services would create a regional imbalance that might lead to capital flight to neighbouring countries.
“Production costs in these countries will be cheaper than Kenya and publishers, especially those with subsidiary firms there, may rush there to print their books. Some of these policies should be harmonised among the East African community to enhance uniformity and protect our economy,” said Mr Njagi.
According to him, it was the practice the world over that books are exempted from duty to promote information generation and acquisition of knowledge.
The rising inflation rates amid the weakening value of the shilling continue to threaten the book industry as most Kenyans are no longer giving priority to books.
Secondary education
“We are thus left with the government as our main customer. But, with the possibility of the price of books increasing by 90 per cent once the Bill is endorsed by Parliament, even the government’s allocation for the free primary and subsidised secondary education will hardly meet the cost of these learning materials,” said Mr Njagi.
He said the bond 70 grams and 80 grams and cover board used for printing of books should be exempted from the taxation rule to build on the gains the education sector has realised since 2003 when the government introduced free primary education.
