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Traders enjoying zero tax on inputs but not passing benefits to buyers

By Dominic Omondi | Published Sun, January 14th 2018 at 00:00, Updated January 13th 2018 at 19:31 GMT +3
Customers at Tuskys Supermarket in Nairobi PHOTO DAVID NJAAGA/STANDARD}

Greedy millers are over-charging consumers by at least Sh25 for a two-kilogramme packet of maize flour, pocketing billions in tax waivers aimed at shielding the poor from expensive unga.

Poor consumers are paying as much as Sh155 a packet, barely two weeks after the end of a subsidy programme that saw them buy the same quantity of the foodstuff at Sh90 and a kilogramme at Sh47. 

This is despite the fact that millers are enjoying tax breaks on all inputs they use to manufacture maize flour after the Government zero-rated maize flour in April 2017.

In other words, millers are not paying the 16 per cent value-added tax (VAT) on such inputs as transport, energy and packaging that goes into the processing of maize flour.  

After gazetting the new tax measures, the Government expected the price of a 2kg packet, which by then had shot up to Sh200 following drought, to retail at not more than Sh115.  

And things are slightly different this time around. Unlike last year when drought had crippled maize harvests in many parts of the country and the region, supply is not that limited as maize from North Rift has already hit the market.

Moreover, it is not very clear whether all the subsidised maize imported in eight months from May 2017 has been exhausted.

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Millers claim they no longer have the cheap maize in stock after the Government not only reduced the allocation of the grain to them but also requested that they return the excess once the subsidy programme came to an end.

However, the National Cereals and Produce Board (NCPB), the body that is responsible for storing cereals on behalf of the Government, has denied being in receipt of any returns. 

“I have not received any returns of maize,” NCPB Managing Director Newton Terer told Weekend Business in a telephone interview.

LINING POCKETS

Millers might be lining their pockets with billions in profits at the expense of taxpayers who paid Sh9.5 billion for the cheap maize from Mexico.   

Indeed, at this time when there is good supply of maize, the cost of a 2kg packet should hover between Sh90 and Sh115, according to Government estimates.

 “The decision was based on survey records which showed that this was the price attaining during the normal maize supplies in the country,” said the Agriculture Cabinet Secretary in a report to the National Assembly on the decision to price two kilogramme of flour at Sh90 through the subsidy programme.

Millers would be subsidised by Sh1,300, with Government buying a 90-kilogramme bag of the cereal from importers at Sh3,600 and selling it to millers at Sh2,300.  

Even before the subsidy programme was unveiled in May 2017, the Government’s plan was to bring down the price of the critical foodstuff by removing VAT on inputs used to make maize and wheat flour.

National Treasury Cabinet Secretary Henry Rotich said this in his Budget Statement to the National Assembly on March 30, 2017.

“Mr Speaker, ordinary bread and maize flour are VAT exempt, which means they do not benefit from deduction of input tax. Therefore, the input tax is built into their selling price,” he said.

“In order to make these commodities affordable for the common mwananchi, I propose to zero-rate bread and maize flour to remove VAT altogether,” said Mr Rotich, warning that should traders fail to comply, the Government would withdraw the incentive.

“Manufacturers, wholesalers and retailers who sell such goods will be expected to reduce the prices of these basic commodities, failing which I will reverse the policy,” he said.

When the new tax measures took effect, Rotich said he expected the price to drop to Sh115.

In a press conference with his Agriculture counterpart Willy Bett, Rotich said this was because millers’ cost of production was expected to decrease by between Sh3 and Sh5 after the zero-rating of all inputs.

Yet, a week later, the price of the maize flour had not gone down - even after the Government had distributed one million bags at a subsidised price of Sh3,000.

Such selfishness by millers and traders came into play, once again, immediately the subsidy programme came to an end on December 31, 2017.

VANISHED FROM SHELVES

Suddenly, Government’s cheap unga vanished from most shelves and was quickly replaced by costly market-priced unga.

Millers defended the abrupt increase in prices of unga, noting that the Government had towards the tail-end of the subsidy programme ensured that allocation of cheap maize to them was reduced.

“The Government made sure that allocation of subsidised maize to us was reduced,” Cereal Millers Association Chief Executive Paloma Fernandes told Weekend Business.

The association’s chairman Nick Hutchinson at the same time said allocated quota was reduced to ensure that no subsidy maize was left over at the end of the programme.

“There was also an agreement that at the end of the subsidy programme, millers would return any leftover subsidy maize to NCPB,” he said in a separate statement.

The gradual phasing out of the subsidised maize was aimed at protecting local farmers whose stock had started trickling into the market.

NCPB’s Terer, however, said he never handled subsidised maize and directed us to an inter-ministerial committee that was tasked with the programme.

Efforts to get comments from the committee’s chairperson, Agriculture Principal Secretary Richard Lesiyampe, were futile.    

An analysis done by our sister publication Financial Standard showed that the country imported at least eight million bags of white maize up to September 2017. This was three million more than had been projected would be brought in within a five-month period from May.

The subsidy programme ran to December 2017, meaning the country might have imported more than 10 million bags of maize.

 

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