Treasury yields to pressure, pulls fresh milk from VAT bracket

Shopping for milk products. The new VAT law reserved its biggest blow on household budgets for the breakfast table. [PHOTO: FILE/STANDARD]

The National Treasury has yielded to pressure and removed processed milk from the list of items that attract 16 per cent value added tax.

This is expected to see prices of milk revert to earlier levels that averaged at Sh40 with immediate effect.

In a statement clarifying the controversy ridden VAT Act, Kenya Revenue Authority (KRA) on Tuesday said it would broaden the term unprocessed milk in the Act to include milk that has been treated to kill bacteria and other harmful substances.

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In the initial phases of implementation of the Act, processed milk had been removed from the list of items exempted from attracting 16 per cent VAT. This resulted in hue and cry from the public and parliamentarians who have been considering amendments to the Act.

“For the purpose of the Act, the term ‘unprocessed milk’ shall include milk that has undergone heat treatment to eradicate harmful bacteria but for which no significant value addition has taken place, so as to change its essential character as milk meant for ordinary use, whether sold in packaged form or otherwise dispensed,” said KRA Commissioner General John Njiraini said in the statement.

The term ‘ordinary bread’ as used in the Act covers all breads… which are sold for general consumption including white and brown bread but does not include crisp and ginger breads primarily used in the catering industry.

KRA however, added that only treated milk in its basic form would remain VAT exempt while other milk products including yoghurts would still attract VAT.

Milk products

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“The clarification however excludes milk products not qualifying as milk for ordinary use including flavoured milk, buttermilk, curdled milk, cream, yoghurt, kephir and other fermented and acidified milks and creams; whether or not concentrated or containing sugar additives or other similar sweetening matter or containing fruits, nuts, cocoa or other similar additives,” the taxman explained.

The move is expected to give Kenyans some reprieve with the expected drop in the price of milk effective immediately to the previous levels of Sh40 per 500 millilitres.

The price of milk, which is heavily consumed in many households in Kenya, had gone up following the commencement of the VAT Act 2013 this month, with half a litre retailing at between Sh60 and Sh80.

The clarification by KRA follows a directive last week by President Uhuru Kenyatta to the Treasury and KRA to publish regulations that will clarify the confusion that has surrounded the Act.

He said that clarity would bar unscrupulous traders from taking advantage of ordinary citizens and overpricing goods.

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“Whereas the VAT law is clear in its design, there have been questions about how it has been interpreted and the National Treasury should move in fast to clear the air on the issue,” he said. Different government officials have in the past said the new law was meant to make the VAT regime simple to administer and comply, increase revenues and cushion the poor.

Initially, Treasury had expected to collect an additional Sh10 billion in tax revenues with the law in place.

It has however seen numerous changes and might not be able to achieve the targeted Sh10 billion.

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Kenya Revenue Authority KRA National Treasury VAT John Njiraini