Confusion rocks retail sector as taxman rolls out new VAT law

Retailers have faulted the manner in which the taxman has implemented the new VAT-law saying it has sparked confusion in the business.

The Value Added Tax (VAT) Act 2013 came into force on Monday effectively imposing 16 per cent levy on thousands of goods and services that had previously been zero-rated.

Retailers, through their umbrella body, the Retail Trade Association of Kenya (RETRAK), Thursday said implementing the new law has been marred by confusion. Further, they note that the Kenya Revenue Authority (KRA) ought to have made allowances for staggered implementation of the law.

“There is a lot of confusion and this is not good for an industry that is already facing challenges. We have to change prices on thousands of products. It is a logistical challenge that cannot be tackled overnight,” RETRAK chairman Bobby Gadhia told Nation Thursday.

Price increment

Retailers, he said, usually rely on suppliers of goods to set prices. While the industry was expected to start levying VAT on a raft of products by Monday, RETRAK said, most retailers were yet to get new price lists from their suppliers.

By Wednesday night, supermarkets said about 70 per cent of suppliers had submitted new price lists. In order to comply with the law, some retailers resulted to slapping a 16 per cent price increment on goods that are now subject to VAT.

“Supermarkets cannot fail to sell some critical products nor can they fail to adhere to the law. They gave ultimatums to suppliers to bring in new price lists and increased prices of affected goods by 16 per cent if the suppliers did not give in the new lists on time,” he said.

This may prove problematic given that not all suppliers will increase prices of their goods by 16 per cent. Some have opted to absorb the cost of the VAT in part or entirely while others have increased the prices of goods by over 16 per cent.

The failure by some suppliers to submit new price lists, Mr Gadhia said, was because there is still a lack of clarity on some of the goods that are affected by the law.

For instance, specialised bread has now been subjected to VAT but neither KRA nor the treasury have provided a detailed definition of specialised bread.

RETRAK also expressed concern that the VAT law would harm business in the industry. There is also fear that traders who do not operate in the official channels will gain undue advantage as they escape the new taxation measures.