Prices of goods rise sharply after Budget even before Bill is passed

Sunday June 26 2016

From left, National Treasury Principal Secretary Kamau Thuge, Cabinet Secretary Henry Rotich and Central Bank of Kenya Governor Patrick Njoroge at Treasury Building before going to Parliament Buildings to present the Budget for 2016/2017 on June 8, 2016. PHOTO | SALATON NJAU | NATION MEDIA GROUP

From left, National Treasury Principal Secretary Kamau Thuge, Cabinet Secretary Henry Rotich and Central Bank of Kenya Governor Patrick Njoroge at Treasury Building before going to Parliament Buildings to present the Budget for 2016/2017 on June 8, 2016. PHOTO | SALATON NJAU | NATION MEDIA GROUP 

By EDWIN OKOTH
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Immediately budget proposals were made on June 8, traders and entities dealing in affected goods and services increased prices without delay.

Traders in paraffin, cosmetics, motor vehicle import, services providers as well as local air travel services bore the burden of the Sh2.3 trillion budget on consumers.

The trend, which is characteristic of the market where price increases are immediate while price drops are delayed, was recently criticised by the Kenya Private Sector Alliance (Kepsa) chief executive Carole Kariuki.

She said the government had done well in improving the ease of doing business but the translation of benefits to consumers was slow.

“I think it is just a policy issue where benefits to consumers are always slow to achieve. It is important that this scenario changes so that the common man is able to benefit faster when certain reliefs are given by the government, the same way expenses are adjusted,” Ms Kariuki said.

The measures laid out by Treasury Cabinet Secretary Henry Rotich in the 2016/2017 budget took effect without any grace period.

Local carrier Jambo Jet informed customers of price changes only days after the budget was read.

“Our base fares have increased by Sh100 following the increase of Domestic Travel tax from Sh500 to Sh600” read a note below the ticket information.

The confusion was fuelled by the fact that some proposals in the Finance Bill 2016 relating to various taxes and duties which were expected to take effect next month, were backdated.

The Bill is yet to be passed in parliament, through.

Tax experts are equally puzzled by the backdating of the amendments, creating confusion among businesses and causing sudden cost adjustments.

Regional audit firm Ernest and Young said it remains unclear how the duties would be effected before the Bill is even passed in Parliament.

“The 10 per cent duty on cosmetics, for example, is supposed to be effective from June 9, 2016. It is hard to tell whether traders will wait until the Bill is passed or they will adhere to the date specified,” the firm said in its budget analysis presented to the Kenya Association of Manufacturers.

The change meant that those selling cosmetics had the choice of loading the costs immediately to the consumer or waiting for the Bill to be passed, and risking being asked by KRA to account for the duties from the effective dates specified by the Bill.

EXCISE DUTY ON VEHICLES

The change from last year’s excise duty on motor vehicles based on the age of the vehicles, where new cars paid Sh150,000 and those older than three years a 20 per cent flat rate, were effected a day after the budget.

Motor vehicle importers expressed frustrations at the port, with some pre-negotiated vehicle prices rising by between Sh700,000 to Sh1 million, to the disappointment of their clients.

Mombasa based importer Abdulaziz Athman, who had ordered for three Toyota Land cruiser vehicles that landed on June 10, a day after the budget was read, is now facing an extra Sh2.3 million in extra duty charges after the adjustments.

“As importers, we have a hard time explaining to our clients the difference in duties. I was amazed when two days after the budget the duty on three cars I had brought turned out to be Sh800,000 more in the KRA systems, yet we had not been given any notice. We cannot rely on this trade any more. Our clients will think we are playing games on them,” Mr Athman said.

Grant Thorton director for Kenya Samuel Mwaura said the move by the CS will cause confusion in the market, just like it happened in the 2013 Act on VAT.

“I am surprised that the one on motor vehicles has been effected yet no law has been passed to that effect. The danger for traders is that the tax collector could penalise them for not effecting the duties at the specified time. All in all, amendments like that on withholding tax — which is expected to start in January — are virtually impossible to effect," Mr Mwaura said.

Had the proposals resulted in reduction of commodity prices, traders would have frozen changes, claiming that the goods in stock were acquired at different prices.

The reverse is never done though.