Costly ugali: Why price of ugali, chapati is set to go up

A protestor holds a plate of ugali as a policeman looks on outside parliament buildings. [File, Standard]

Your two favourite meals of ugali and chapati are about to get more expensive, with the Government planning to impose value added tax (VAT) on both wheat and maize flour.

The flours are currently zero rated to keep food prices manageable, but the National Treasury has proposed to take away their zero-rated status in the Finance Bill, 2022.

Imposition of the 16 per cent VAT would significantly increase food prices especially ugali, a staple in many Kenyan households.

In the Bill, which explores additional revenue-raising measures for the 2022-23 financial year, Treasury has proposed the removal of maize, wheat and cassava flour from the list of goods that do not have VAT.

The Bill proposes the amendment of the first and second schedules of the VAT Act, 2013, removing different flours from the list of VAT exempt (listed in the First Schedule) and zero-rated goods (Second Schedule).

This is set to hit Kenyans hard. Many are already grappling with high cost of living recently exacerbated by the Covid-19 pandemic and the ongoing drought, which has exposed more than three million Kenyans to acute hunger and in need of food aid.

In imposing the 16 per cent VAT on maize and wheat flour, Treasury will be complying with requirements by the International Monetary Fund (IMF) that has been pushing the government to increase tax revenues.

IMF had also wanted Treasury to reduce expenditure in areas such as VAT refunds that take a toll on government revenues but are also prone to fraudulent claims.

“The Second Schedule to the Value Added Tax Act, 2013 is amended…in part A, by deleting the following paragraph ‘the supply of maize (corn) flour, cassava flour, wheat or meslin flour by more than 10 per cent in weight’,” reads the Finance Bill.

An Oxfam report in March indicated that as many as 3.1 million Kenyans are facing starvation and need food aid following the drought experienced in 2021 and this year.

This is even as Treasury gifted pharmaceutical firms and vehicle assemblers by exempting some of the products that they use in their production processes from paying VAT.

The Finance Bill proposes amending the First Schedule of the VAT Act (which lists items that are VAT exempt) to include plant equipment imported by manufacturers of pharmaceutical products.

Other medical equipment that will become exempt from VAT is medical oxygen supplied to registered hospitals, urine bags, adult diapers, artificial breasts, colostomy or ileostomy bags for medical use.

National Treasury Cabinet Secretary Ukur Yatani said the move would attract investments in the critical health sector and enable the government to achieve universal health coverage.

“The outbreak of Covid-19 pandemic and the ensuing socio-economic implications on Kenyans continue to impose a heavy burden on our health sector," he said in the Budget Speech on Thursday.

"In this regard, I have proposed to provide more incentives to the sector by exempting from VAT plant and machinery for use by manufacturers of pharmaceutical products.”

“The Government has been progressively addressing the cost of healthcare in the country so as to expand access to quality and affordable health care services.”

Treasury also proposed exempting from VAT inputs and raw materials used in manufacturing of passenger cars.

“Assembly of motor vehicles and manufacture of motor vehicle parts locally has gained traction," Mr Yatani said.

"In order to encourage more investment especially in the manufacture of passenger motor vehicles locally, I propose to exempt from VAT inputs and raw materials used in the manufacture of passenger motor vehicles.

“Additionally, I propose to exempt locally manufactured passenger motor vehicles from VAT.”