Fuel prices have risen by 12 per cent to an average of Sh128.70 per litre of super petrol.
Maize millers have announced plans to increase prices of the Kenyan staple citing the new 16 per cent tax on petroleum products, further squeezing households that only last month absorbed a steep rise in electricity bills.
Cereal Millers Association chairman Mohamed Islam in a statement yesterday said maize and wheat flour processors will raise prices to reflect increased operating costs after implementation of the new tax.
The new value added tax (VAT) on fuel has so far triggered bus fare increases even as Members of Parliament announced plans to recall the House from recess to discuss Treasury secretary Henry Rotich.
MPs last Thursday voted to postpone the VAT for a further two years, but Mr Rotich on Friday directed the Kenya Revenue Authority (KRA) to implement the International Monetary Fund (IMF)-fronted tax before President Uhuru Kenyatta had assented to Parliament’s amendments.
Activist Okiya Omtatah Tuesday failed in his bid to get a court order suspending the new tax.
The millers also cited the recent change in the Value Added Tax (VAT) status for processed wheat and maize flour from zero-rated to exempt status.
The new law introduced 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.
The change of status means millers can no longer claim input VAT on production.
Value Added Tax
“The recent changes in the Value Added Tax (VAT) status for processed wheat and maize flour and more recently the addition of VAT to petroleum products, have left our members with little room to absorb these additional costs without jeopardizing quality and the sustainability of operations,” said Mr Islam in the statement.
“Furthermore, the recent introduction of VAT on petroleum products has exacerbated the situation as millers and all players along the supply chain are now factoring in these additional costs in their production.”
The millers body said the change of this status has resulted in additional costs for grain handling, flour processing, packaging and distribution costs.
The price increase comes as a blow to ordinary Kenyans as maize flour prices had dipped to a six-year low on increased supply of cheap grains from Uganda and harvests in Western Kenya, easing inflationary pressure.
A two-kilogramme packet of some maize flour brands is retailing at Sh86, a price last recorded in 2012.
The imports from Uganda and local harvests have pulled down the cost of a bag of maize from Sh3,200 in January to below Sh2,000 in August, offering millers room to cut costs for consumers.
The price of bread has remained at Sh50 for months. Maize is a national staple while bread is used by majority of urban households for breakfast.
“The CMA is cognizant of inflationary pressures faced by our consumers but regrettably in light of all the above-mentioned costs, members would find it very hard to maintain current wheat and maize flour prices,” said Mr Islam.
He added that millers’ transportation costs will now increase two-fold following the introduction of VAT on fuel, forcing millers to absorb the costs.
“The newly-introduced VAT on fuel will have an additional ripple effect on the cost of electricity, packaging and other costs of production that are fuel-related,” he said.
Additional cost burdens
The millers lobby asked the Treasury to review the new taxation policies with a view to sparing Kenyans additional cost burdens.
“Grain growers who depend on mechanized farming are expected to see an increase in the cost of production and pass on these additional costs of their mechanization to the millers,” it said.
“As a responsible organisation we are open to dialogue that can reach a mutually beneficial outcome for all Kenyans.”
The announcement by the millers comes as Kenyans reel from higher pump prices that have increased transportation costs sparking protests from parts of the country.
Fuel prices have risen by 12 per cent to an average of Sh128.70 per litre of super petrol following the tax increase, of which the government will be collecting Sh55.16 per litre.
Fares have shot up by up to a minimum Sh50 from Sh30 in some rural areas and doubled to at least Sh100 for trips within Nairobi and its environs.
On Tuesday, opponents of the fuel tax suffered a blow after the High Court declined to suspend its implementation.
Justice Enock Chacha Mwita said the government needs to be given an opportunity to respond to the issues raised in the case.
Activists Omtatah, Wyclife Gisebe Nyakina and the Central Organisation of Trade Unions (Cotu) have filed a suit against Mr Rotich, KRA, the Energy Regulatory Commission (ERC) and the Attorney-General seeking to reverse implementation of the fuel tax.
“I decline to grant exparte orders (one party) but I certify this case as urgent. I order that the same be heard during the current vacation,” ruled Justice Mwita yesterday.
He fixed the case to be heard on September 10 saying there is a window of 14 days that the President has before assenting to the Finance Bill 2018.
Sections of leaders have urged Mr Kenyatta to assent to the parliamentary amendment, to suspend implementation of the fuel tax by a further two years.
He is set to fly back into the country from an official China trip.