Tax experts fault sharp price rise
What you need to know:
- While the National Assembly put a number of basic commodities in the tax-exempt list, some such as processed milk were left out and their prices have increased by up to Sh10
- Supermarkets that have been selling thousands of products have to change their software system for this, and likely realised late that the law had come into effect
A new Value Added Tax law was necessary but the Treasury should have implemented it slowly, tax experts have said.
Mr Rajesh Shah, a senior tax partner at Pricewaterhouse Coopers, on Tuesday said the government had “taken too much of a drastic step” with the VAT Act, which took effect on Monday.
“It was necessary for the Act to come through. The old one was cumbersome,” said Mr Shah. “But by taking too much of a drastic step, they have increased the cost of living.”
Mr Nikhil Hira, Tax Partner at Deloitte East Africa, concurred, saying the list of tax-exempt and zero-rated goods had been reduced drastically.
While the National Assembly put a number of basic commodities in the tax-exempt list, some such as processed milk were left out and their prices have increased by up to Sh10.
So have newspapers, with the effect on books yet to be well established.
Others whose prices are set to go up are cell phones and animal feeds. Tour operators, hotels and railway transport have also been affected.
Mr Hira said this would affect small-scale farmers, who are considered the backbone of the economy, but consumers of their products would bear the costs.
Another mistake, he said, was in the Cabinet Secretary announcing at the weekend that the new law would take effect on September 2.
SUPERMARKETS CHANGE SOFTWARE
Supermarkets that have been selling thousands of products have to change their software system for this, and likely realised late that the law had come into effect.
“There’s going to be a period of one or two weeks where people are not going to be paying the right taxes or charging the right tax,” he said.
This creates the chances that the KRA could then go after those who don’t pay the right taxes during the transition period.
The cost of manufacturing is also likely to rise as the rate for fuel oil has gone up from 12 per cent to 16 per cent.
“People are going to be crying for the first six months, if you ask me, but if we are able to enforce it correctly, we should be able to raise the amount of revenue we collect from VAT,” he said.
On Tuesday, Finance Committee vice-chairman Nelson Gaichuhie said the proposal to have newspapers, periodicals and journals on the exempt list was rejected on the floor of the House on the night of August 6.
Consumer Federation of Kenya secretary-general Stephen Mutoro, on his part, asked President Kenyatta to request Parliament and the Treasury to amend the Constitution and delay effecting of the VAT Act 2013.
