Processors petition Treasury to reconsider VAT on milk

By Jevans Nyabiage

Milk processors have expressed fears that the recent imposition of Valued Added Tax (VAT) on the product could hit their sales volumes and likely hand a tax advantage to hawkers.

The industry umbrella lobby, the Kenya Dairy Processors Association (KDPA) says the move to introduce 16 per cent VAT on processed milk - pasteurised milk, UHT and milk powder - instant, full cream and skimmed milk powder will have far reaching repercussions on the industry.

KDPA in a petition to Treasury pressed on the Government to reconsider VAT on milk. The processors said they have already seen a decline in sale of processed milk.

“All processors have registered a remarkable decline in the sale of processed milk due to the high prices,” New KCC Managing Director Dr Kipkirui Lang’at.

Lang’at who is the chairman of KDPA, raised the concern in a letter addressed to the National Treasury Cabinet Secretary, Henry Rotich.

Processors say the new tax on milk products that were previously zero-rated will slow down the sale of processed dairy products, push low-income households from the formal milk market and fuel milk hawking.

This contravenes an earlier ban by the Kenya Dairy Board (KDB) on hawking of unprocessed milk.

The levy has seen retail milk prices jump by as high as Sh20 for a half litre packet.  A spot-check by The Standard found out that most retail shops were selling 500ml packet of processed milk at between Sh55 and Sh60 from as low as Sh40 a week ago.

Milk dispenser

The same quantity of unprocessed milk, which has lately found its way into retail chains in form of “milk dispensers” or “banks”, goes for about Sh30.

This has seen more and more customers abandon the processed fresh milk on the shelves for queues at the cheaper dispensers of the commodity in supermarkets.  “The sale of hawked milk has increased both in volume and price. The hawkers have increased the price of milk though lower than that of processors despite the fact that they are not paying VAT,” Lang’at said.

He added that this defeats the objective of the VAT Act 2013 and is in direct contravention of the Dairy Industry Act Cap 336 and the Public Health Act Cap 242 of the Laws of Kenya, which bans the retailing of unprocessed milk.

Milk processors say the tax attempts to legitimise the informal sector, which will lead to less revenue collection by the tax authority.

“The ripple effects of this process will also lead to significant reduction of revenue from other players including the packaging and transporter sector,” the lobby said in the letter copied to Mr Felix Koskei, cabinet secretary Agriculture, Livestock and Fisheries.

The processors warn that with the expected increase in milk production in the next few weeks, they will not process the current milk volume due to decline of sale of processed milk.

And the situation is likely to get worse with the anticipated increase in milk production during the short rains. “Farmers will struggle financially and this will deter further investments in the dairy sector,” he said.


 

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