MPs in move to lower cost of ugali by rejecting higher tax proposals

In the new changes tabled in the House on June 22, 2021, the prices of chapati and ugali are likely to go down. [Courtesy]

Law-makers have jolted National Treasury’s revenue-raising plan after they introduced a raft of changes to the Finance Bill 2021 in what is aimed at rescuing Wanjiku from the growing burden of taxation.

In the new changes tabled in the House yesterday, the prices of chapati and ugali are likely to go down after the National Assembly’s Finance Committee proposed to zero rates valued-added tax (VAT) on maize and wheat flour.

This is meant to help manufacturers of these basic commodities claim VAT they paid on inputs such as electricity rather than passing it on to the consumers.

Other big winners in the latest changes include importers of motorbikes, parents who will buy infant foods at cheaper rates and sugar cane farmers.

But in what appears like giving with one hand and taking with the other, the committee led by Woman Representative Gladys Wanga, proposed to increase excise duty on telephone and internet services.

This will increase the cost of calling and browsing at a time when Kenyans are expected to operate virtually with President Uhuru Kenyatta’s government relying on increased digitisation to help the economy to recover.

In fact, airtime, data bundles and mobile money transfer services have come to occupy a special place in Kenyans’ shopping basket.

After the review of the Consumer Price Index (CPI) or the cost of living index, by the Kenya National Bureau of Statistics (KNBS) last year, airtime is now the single item that takes up the biggest chunk of individuals’ income.

After the review of the goods and services used to compile the index, KNBS gave airtime a weight of 5.496, the largest of any single consumer product.

Kenyans are putting more of their money into airtime than even rent — which had the heaviest weight just three years ago — health or education.

Zero-rate bread

Airtime is increasingly becoming the government’s cash cow and the latest change could make up for the revenue loss brought about by the MPs tax changes.

Gamblers will also not have it easy after the Committee proposed to increase excise duty to 30 per cent. The National Treasury had proposed to introduce an excise duty of 20 per cent on the amount wagered.

Other losers in the latest proposed changes to the Bill aimed at helping the government raise Sh1.8 trillion in taxes, is the importation of confectionery sugar that will see its tax raise from Sh20 per kilo to Sh35.

Nonetheless, MPs intervention saw a range of products taken away from the thumb of the taxman.

The Committee also proposed to zero-rate VAT on bread as opposed to making it exempt, which meant that manufacturers could not claim the 16 per cent VAT that they paid on raw materials. 

“The Committee proposes that ordinary bread remains zero-rated because even if you say that you’re moving it to exempt and you say the government is going to raise revenue, the revenue you’re raising is just going to be put on wananchi,” said Wanga.

Plastic syringes which had also been lined up for a 16 per cent VAT will be spared should MPs approve the Committee’s proposal to remove it.

“The Committee proposes to return syringes to the list of exempt items because it is important to keep them there especially during this Covid period,” said Wanga.

“This Finance Bill is done at a very delicate time when Treasury and members of this House have to balance between cushioning Kenyans from the Covid-19 pandemic but the same time raising sufficient revenue to fund the Sh3.6 trillion Budget.”

Sugar cane and exporters will also benefit from reduced taxes after the Committee removed VAT on transport services.

This means that farmers will not pay VAT for the delivery of their cane to milling factories.

The Committee also agreed to remove (exempt) VAT on all baby food including milk specifically prepared for infants in what is a win for parents.

The Committee rejected Treasury’s proposals to have changes on VAT not be approved by the National Assembly.

The Committee shot down Treasury’s proposal to revise excise duty on imported motorcycles from a fixed amount of Sh11,608 per unit to 15 per cent of the excisable value.

“The proposal will increase the price of motorcycles and therefore negatively affect the boda-boda industry given that the Committee rejected the proposal in the Finance Bill, 2021,” read part of the report by the Committee.

Qualify for benefit

The proposal for companies to get a tax break for employing 10 technical institutions graduates got a boost with the lawmakers reducing the number to at least five instead of 10 for an employer to qualify for the benefit.

Manufacturers of paint, resin and shoe polish will also be smiling after the Committee exempted them from the anti-adulation levy charged on kerosene, a critical input in their production process.

Minority leader John Mbadi opposed the proposal by the Treasury to have Parliament relinquish the move to rid MPs of the authority to approve VAT changes.

“You cannot ask Parliament to give away the right to challenge the VAT. Bring those changes to Parliament,” said Mbadi.

[additional reporting by Moses Nyamori and Brian Otieno]  

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