Consumers face price hikes on goods over new fuel levy

Manufacturers have threatened to raise the cost of products to factor in additional costs if the law imposing a 16 per cent Value Added Tax on petroleum products is upheld.

President Uhuru Kenyatta has until tomorrow to sign or reject the Finance Bill 2018, which contains the punitive tax that has elicited hue and cry from Kenyans, as high fuel prices have a ripple effect on all spheres of the economy.

The Bill was passed by the National Assembly on August 30. If the 14 days lapse without any action by the President, the Constitution says such a Bill automatically becomes law and would in this case effectively suspend levying of VAT on petroleum products.

Exorbitant margins

The President could, however, opt to send it back to Parliament with recommendations, including a lower levy, projected at about 12 per cent.

Implementation of the levy started on September 1 after the expiry of a two-year suspension of clauses imposing VAT on petroleum products by the VAT Act 2013.

Its implementation has seen prices of basic goods and services go up, with some players, especially those in the transport industry, already hiking charges, some by huge margins.

Manufacturers yesterday said they were in the process of revising prices of their products in a move that will hurt consumers more.

Sachen Gudka, the Kenya Association of Manufacturers (KAM) chairman, said individual manufacturers were computing the impact that the increase in fuel prices had on their production processes before pushing up the cost of their products.

“The impact will lead to price increase, but we need to calibrate on product by product basis,” he said at a Press briefing in Nairobi.

Maize and wheat millers have also said they will not absorb the increased cost of production.

Like manufacturing, mechanised agriculture relies heavily on fuel from the inputs to the processes at the farm as well as taking the produce to the market.

Mohamed Islam, chairman Cereal Millers Association (CMA), said last week that other than the VAT on petroleum products, millers also had to grapple with changes in VAT status of maize and wheat flour.

Treasury recently changed the status of wheat and maize flour to exempt from zero-rated, meaning millers can no longer claim VAT on production.

These, he noted, had left them with little room to absorb these additional costs without jeopardising the quality and sustainability of operations.

“Following the introduction of VAT on fuel, transportation costs will now increase two-fold, that is, from the grain handling facilities to the millers and from the millers to the respective retailers, whereby millers have to absorb these costs. The newly-introduced VAT on fuel will have an additional ripple effect on the cost of electricity, packaging and other costs of production that are fuel-related,” said Mr Islam.

It will be the same for farmers who carry out mechanised operations, and who will now, pass additional fuel costs on other players in the value chain and eventually the consumer.

Agriculture Cabinet Secretary Mwangi Kiunjuri said yesterday his ministry planned to give some concessions to the millers and had already held preliminary discussions, with some of the options that are being explored being giving them subsidies.

“The Government is considering a subsidy to cushion maize millers from the high taxation measures, including the 16 per cent VAT on petroleum, which would increase the cost of maize flour and hit the pocket of the common Mwananchi,” said Mr Kiunjuri at a separate briefing in Nairobi.