By Morris Aron
Credible information indicates that one of the conditions made by the IMF before approving a $420 million (Sh35.7 billion) to Treasury to ‘strengthen the shilling and tame inflation’ required that the VAT bill 2012 be passed into law, and effected.
The VAT Bill 2012 is expected to have far-reaching effects if passed by Parliament as it will hand Treasury the power to subject basic commodities such as milk, bread, maize flour and sanitary towels to value added tax without any prior approval.
Budget analysts say that the development will see the price of the basic commodities — which have never attracted tax— go up by 16 per cent upon the introduction of tax.
Other commodities that will also attract tax include sanitary towels, exercise books, infant formulae and even newspapers among other commodities.
Tax experts from KPMG noted that by passing the new VAT Bill, the Finance Secretary would only be required to carry out a gazette notice to change the level of taxation.
The revelation has left tax experts scratching their heads on the best way to address the seemingly soon to be un-popular decision to raise taxes of basic commodities. On one hand, many welcome the reforms in the tax regime that is aimed at bringing more people under the tax bracket as it means increased tax revenue.
On the other hand, increased taxation on basic commodities at a time when many are already bearing the brunt of inflation is bound to result in a lot of disquiet, erode disposable income further and lead to a drop in the level of income.
But even though the VAT Bill 2012 is a matter of discussion, Kenya already has a loan from IMF whose approval was pegged on the new rules.