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| Implementation of the VAT Act 2013 has seen the cost of living rise after manufacturers increased the price of basic commodities to recoup profit. |
By Jackson Okoth
Parliament is expected to discuss amendments to the VAT Act, 2013 when it resumes sittings this month.
This follows mounting pressure to review the Act. Tax on basic commodities consumed by low-income groups such as milk and processed food items has seen the cost living rise.
“With an expansion in the VAT bracket, there could be a reduction in the rates when the next budget is presented,” said Kwame Owino, Chief Executive-Institute of Economic Affairs (IEA).
He made these remarks yesterday during the 2014/15 per-budget hearings ending today. The process will involve drafting a memorandum, to be presented to Treasury.
The new VAT law has been blamed for recent increase in the price of food items, especially those consumed by poor households.
“The amended VAT Bill has gone through the first reading and will proceed to the second reading as soon as we come back from recess,” said John Mbadi, Suba MP, and sponsor of the amendments to the VAT Act 2013.
The proposed law seeks to exempt infant milk, processed milk, mosquito and fishing nets, insecticides, fungicides and herbicides from VAT.
Other goods and services to be exempted from taxation include vegetables, newspapers, journals, postal and water drilling services. If successful, the amendment will also exempt electricity supply to households and services offered by the Rural Electrification Authority. A raft of proposals is expected to reach treasury ahead of the 2014/15 budget, including critical sectors of the economy.
Tax incentives
“We need clarification on what is and is not vatable including infrastructure or commercial land,” said Robyn Emerson, chief executive-Kenya Property Developers Association.
Developers are seeking for more tax incentives in order to support Vision 2030 goals. It is not only the real estate sector that is unhappy with the current tax regime. “We have seen county governments coming up with all manner of illegal levies, an indication of the need for direction on what tax is allowed at the county government level,” said Chryspin Afifu, official at Micro and Small enterprises Federation.
The VAT Act 2013, which became operational on September 2, 2013, has put a 16 per cent tax on essential goods and services that had previously been zero-rated.
These former zero-rated goods include milk, maize and wheat flour, bread, sanitary towels, medical dressing and plasters. Some of the zero-rated services that became taxable at 16 percent are electricity and water.
