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Red alert: Why the cost of food will go up in july

By Moses Michira | Published Wed, May 16th 2018 at 00:00, Updated May 16th 2018 at 14:14 GMT +3
Students at a local supermarket. Milk, sugar, maize flour and wheat flour have been slapped with 16 per cent value added tax. [File, Standard]

Milk and bread are among the basic items whose prices will rise sharply in July after enactment of planned broad changes on taxation laws that also touch companies.

Applying a uniform rate of 16 per cent on all items would see the prices rise by a similar margin.

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A loaf of bread currently retailing at Sh50, for instance, could climb to Sh58.

Poor households would be more exposed in the amendments with sweeping implications on many sectors, as the State seeks to raise Sh1.75 trillion in the next financial year.

Most basic commodities are not taxed to cushion the poor, but the changes that will be proposed in the national budget will end that.

“We are looking at exemptions on several products that are widely consumed, but not on VAT such as milk, sugar, maize flour, wheat flour…,” said Benson Korongo, a commissioner of Kenya Revenue Authority.

He said the taxation review would help in raising additional revenues but could not immediately tell the amount targeted from the changes.

Among the expected benefits of a uniform taxation regime, according to KRA, will be ease of application.

KRA’s target for the next financial year is 17 per cent over the near Sh1.5 trillion for the period ending June 30, a huge jump whose attainment would require tough measures.

The proposal must get approval of the National Assembly.

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National Treasury Cabinet Secretary Henry Rotich will address the amendments in his budget speech.

Unlike in the previous one, which was friendly to consumers largely because it fell in an election year, he would easily introduce any changes now - regardless of how the mwananchi will react.

Already, Mr Rotich has indicated that cooking gas will also be subjected to VAT, which was suspended in December 2016.

Consumer protection lobbies will definitely rise to criticise the tax hike, as it will affect the poor more disproportionately.

“Applying VAT on all zero rates and exempt items will mean a steep escalation in the cost of living. This will in turn shrink consumer spending,” said Stephen Mutoro, the secretary general of the Consumer Federation of Kenya.

He said the production-based budgeting system had never worked for the country.

“It is far cheaper to adopt austerity measures by fighting corruption than punishing consumers during every budgeting cycle,” Mr Mutoro said, warning that the measures could open the floodgates to cheaper imports.

Slapping VAT on basic commodities is only among the major amendments to the taxation laws, coming after the publishing of the Income Tax Bill that is now undergoing public participation.

The public has been invited to give its views on the draft legislation.

Mr Rotich is also targeting dividends earned by 3.6 million Kenyans who are members of cooperative societies, raising the tax two-fold to 10 per cent.

Fred Omondi, a tax partner at Deloitte East Africa, cautioned that while the measure aims at increasing revenue collections, it could dampen the savings culture among many Kenyans.

Profits realised from the sale of property have been raised four-fold to 20 per cent, in one of the most aggressive proposals. Rotich intends to start taxing transactions done on digital platforms such as the online shops that are popular with millenials.

It is not clear, however, how he would get his hand on the millions that are transacted everyday, often without the buyer and seller even meeting.

A new income tax band has also been introduced for monthly incomes exceeding Sh750,000, which will now attract a 35 per cent rate.


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