News and Analysis
November 21, 2024
The government is seeking to implement higher taxes that will raise the production costs of commodities such as maize flour, bread, and milk, likely resulting in increased prices for consumers.
Treasury Cabinet Secretary John Mbadi on Wednesday, October 16 announced that the government would be proposing to move the commodities from being VAT (Value Added Tax) zero-rated to tax exempt categories.
Goods that are zero-rated can seek VAT refunds from the Kenya Revenue Authority (KRA) for their input costs, including electricity, fuel, and raw materials.
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On the other hand, those in the exempt category do not have this option, often leading to higher prices for consumers as producers pass on the added cost.
“We need to remove bread from being zero-rated to be exempt. I know many people say that zero-rated is cheaper than exempt and I agree,” said the CS.
The CS also added that the changes to the list of zero-rated goods and services are part of the broader plan to review the VAT Act over the medium term to seal tax loopholes.
This comes months after the Finance Bill 2024 was withdrawn in its entirety by President William Ruto after mass protests against the bill.
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The Finance Bill 2024 initially had a proposal of introducing a 16% VAT on bread, which became one of the most contentious proposals and ultimately contributed to its collapse.
The scrapping of the proposed tax hikes after the collapse of the bill left a Ksh346 billion deficit that resulted in the president's directive to reduce government expenditure.
"I have therefore assented to the Appropriations Bill 2024 and instructed the National Treasury to immediately prepare supplementary estimates to reduce expenditure by the amount of revenue that was expected to be generated by the rejected Finance Bill, " he said in a statement.
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