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Consumers face more pain as KRA inflation tax sets in today

Prices of foodstuff displayed in a retail shop. [Omondi Onyango,Standard]

The prices of at least 31 goods, including beer, SIM cards, boda boda, fuel, bottled water and juices will increase starting today as the Kenya Revenue Authority (KRA) moves to implement the annual inflation tax.

KRA said the rates will be adjusted using the average inflation rate for the financial year 2021/2022 of 6.3 per cent as determined by the Kenya National Bureau of Standards (KNBS).

This is as inflation—a measure of annual changes in the cost of living—hit 9.2 per cent in September from 8.5 per cent in August, KNBS reported on Friday.

“The Commissioner General will adjust the specific rates of taxes applicable to excisable goods which are charged excise duty at a specific date,” said KRA in a public notice.

“The adjusted specific rates will be effective from October 1, 2022.”

The tax adjustment is made on excise duty charged on the products every year  in line with the tax law.

Manufacturers will likely pass on the additional cost of the commodities to end consumers, piling more economic strain on households struggling with financial hardships.

Products to be affected and which will now cost more, according to the schedule published by KRA, include fruit juices, bottled or similarly packaged waters and other non-alcoholic beverages, not including fruit or vegetable juices.

Wines including fortified wines, and other alcoholic beverages obtained by fermentation of fruits, spirits, Cigarettes as well as chocolate will also cost more.

Others to be affected are the popular imported motorcycles or boda bodas, imported SIM cards, diesel oil (industrial heavy, black, for low-speed marine and stationery engines) and illuminating kerosene.

This means mobile phone users seeking to replace or register afresh for new lines will pay more for the line.

The cost of SIM cards had already gone up after the Finance Act 2022 imposed a Sh50 excise duty on every imported ready-to-use SIM card.

Beer lovers will also not be spared after brewers including East African Breweries signalled recently that they will no longer absorb the excise tax adjustment for inflation for alcoholic beverages.

Tax experts warned yesterday the latest raise would be counterproductive as it would hurt economically strained consumers who are already reeling from high inflation which has squeezed their spending power.

“Raising taxes in the current environment may be counterproductive,” said Nikhil Hira, a tax expert and Partner at Kody Africa LLP.

“People are already being hurt by inflation - a worldwide problem - and it may mean they can’t afford.”

Manufacturers and consumer lobbies have already warned the planned fresh round of taxes on consumer goods from tomorrow will further hurt already strained consumers’ buying power and depress company sales, hurting the economy.

But the inflation adjustment, which came into force in 2018, is seen as a means of protecting the government’s spending power from being eroded by the rising cost of living.

The Kenya Association of Manufacturers (KAM) chairperson Rajan Shah said earlier that the impact for consumers and manufacturers “shall be negative given the fact that disposable income is already highly constrained in this high inflation environment and a large proportion of this income is already being spent on food and fuel.”

A weakened shilling, which exchanged at an average of 120.7324 to the dollar on Friday, according to the Central Bank of Kenya (CBK), has further pushed up living costs, hurting households already subjected to high fuel and food prices.

Kenya imports various goods including cars, petroleum, machinery, medicine and pharmaceuticals products, vegetable oil, wheat, clothing and shoes with the weaker shilling causing more consumer pain.

CBK Governor Patrick Njoroge said the decision on Thursday to raise its key lending rates despite the risk of making loans costlier was aimed at protecting the low-income groups.

“Inflation hurts the weakest the most,” said Dr Njoroge yesterday. “That’s why it’s important to bring it under control.”

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