Nairobi,Kenya: The economy is set to suffer shocks as Treasury seeks to raise more money through VAT.
Nairobi Treasury Building. Photo/Reuters
Last week, the National Treasury Cabinet Secretary tabled in Parliament the VAT Bill 2013 that seeks to impose a blanket levy on all previously zero-rated goods.
According to the Bill, the President of Kenya, members of the armed forces, disabled, blind and physically handicapped persons as well as armed forces canteen, museum exhibits and equipment, Safari Rally drivers and African Medical and Research Foundation, will now pay value added tax (VAT) when making purchases.
Loud protests
But it is the inclusion of essential food items and other essential commodities that has raised loud protests in Parliament and on the streets.
These items include processed milk and cream, maize and wheat flour, bread, glucose, baby formulas and exercise books.
Other products that will be subject to tax when the VATBill 2013 becomes law are insecticides, condoms and live trees.
“The motive for removing goods and services from the zero-rated and exempt list is because of the problems associated with tax refunds,” said John Thindi, Director PKF Taxation Services Ltd.
Thindi made the remarks yesterday on the sidelines of a one-day Budget Review Seminar in Nairobi.
Interestingly, while the Treasury had indicated its intention to re-introduce capital gains tax, there is no mention of this in the Finance Bill 2013.
Consumers will also be slapped with a heavy electricity Bill when VAT on electrical power supply moves from 12 per cent to 16 per cent.
“While the national carrier Kenya Airways is still struggling to remain on its feet, a 16-per cent VAT on aeroplanes will hurt its business,” said Michael Mburugu, Director PKF Taxation Services Ltd, adding that while the spirit of the VAT Bill is good, few sections must be amended to avoid hurting the economy.
Also to suffer are those ailing individuals who are on prescription drugs such as those suffering from diabetes, cancer, HIV status and other chronic illnesses. All medicines will now be charged VAT at 16 per cent if this Bill is passed into law.
“It is unlikely that medicine will be removed from the VAT list if the Bill is passed. Medicine is already expensive and VAT will not be the only price driver,” said Mburugu.
The only items that could be knocked off from the VAT list are maize and wheat flour, largely due to loud street protests.
If passed, the VAT Bill will also hurt farmers through imposition of tax on chemical fertilisers.
The list of items previously zero rated and will move to the VAT bracket include electricity supply to domestic consumers, foreign travel supplied by hotel establishments, transit goods including services to transit aircraft as well as film producers.
Exempt services that will now be subject to VATinclude transportation of tourists, performance by Kenyan artistes, postal services and services of tour operators and travel agents.
By JACKSON OKOTH, The Standard
