Millers have warned that changing the Value Added Tax (VAT) from zero-rated to exempt status will lead to expensive flour for consumers.
The overhaul will affect maize, wheat and cassava with the effect of manufacturers not recovering input tax under the Tax Laws Amendment Bill 2018 tabled in Parliament last month.
This implies millers will not claim the 16 per cent VAT on the inputs in the products.
“The impact of this move is that millers cannot recover VAT on input and hence increase in cost of flour, which will be passed on to consumers,” says Cereal Millers Association.
The Bill seeks introduction of tax exemption on supply of maize (corn) flour, ordinary bread and cassava flour, wheat or meslin flour containing either of the ingredients by more than 10 per cent in weight.
Audit firm PwC says the overall effect of the government’s move will be an increase in the cost of basic commodities.
“Whilst the Bill will alleviate the burden of paying VAT refunds for the government, the proposed changes are bound to increase the costs of certain goods,” says PwC.
“As a general observation, if the Bill is enacted into law, the overall net implication will be an increase in the prices of basic commodities such as flour, milk, bread and medicaments,” added the firm.
Maize is a national staple while bread is used by the majority of households. The price of bread has remained at Sh50 for a very long time.
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