Treasury now faulted over milk, bread tax plan in revenue push

Milk in a glass on a light background with fresh crusted bread. [iStock Images]

A potential of mass layoffs looms if the Treasury's proposal to tax bread and milk comes to fruition, experts have cautioned.

This comes after Treasury proposed to introduce a 16 per cent value-added tax (VAT) on bread and milk in a fresh push to boost revenue collections from middle-class.

Economists argue that viewing bread and milk consumption as exclusive to the middle class is a flawed perception. These staples are fundamental household commodities in many Kenyan homes, including those of low-income earners.

Patrick Muinde, an economist, contends that bread and milk are consumed and traded throughout the country. "Assuming that bread and milk are solely sold in supermarkets frequented by the middle class is inaccurate. The CS (Treasury Cabinet Secretary) implies that poor people don't visit supermarkets."

Muinde adds that officials at Treasury seem disconnected from the realities on the ground.

This isn't the first time these two commodities have faced the threat of taxation. A decade ago, former President Uhuru Kenyatta's administration imposed VAT on bread and milk, resulting in a significant decline in consumption of these commodities.

During the Africa Fiscal Monitor forum organised by the International Monetary Fund (IMF) this past week, Treasury Cabinet Secretary, Prof Njuguna Ndung'u cited government agency studies showing that the current zero-rated VAT structure on bread and milk failed to shield targeted poor households but instead benefited the middle class with relatively higher incomes.

According to Japheth Ogutu, the executive director of the Consumer Downtown Association, the Treasury's move lacks consultation with consumers and key opinion leaders representing them.

"The Treasury hasn't sought our advice or opinion, which renders the move both illegal and suspicious. Suggestions should undergo public engagement,"says Ogutu.

Ogutu predicts adverse effects on the livelihoods of many Kenyans if the proposal is implemented, stating, "many Kenyans won't afford breakfast for their families."Samuel Mwaura, a youth leader, expresses concern over the high cost of living exacerbated by the fear of basic household commodities being taxed, impacting low-income earners like himself significantly.

Parliament is urged to reject the proposal, including other counterproductive tax policies, such as the housing levy, as they burden low-income earners.